Have you ever wondered what happens when the people who set the price of money answer to almost no one? I have. Watching the latest round of efforts to remove a sitting Federal Reserve governor has made me think hard about that question. The case itself is narrow—allegations about mortgage paperwork and whether they amount to cause for removal. Yet the fight quickly spills into something larger. It forces us to ask whether an institution that can create or destroy trillions in value through its decisions should remain so insulated from ordinary political accountability.
The Narrow Case and the Wider Test
The White House has formed a small committee to look into whether the governor in question made inaccurate statements when applying for mortgages. The committee plans to hold a hearing and give her a chance to respond. This step comes after an earlier attempt was blocked because the law requires notice and an opportunity to be heard before any for-cause removal. Lawyers for the governor call the discrepancy an inadvertent error and note that similar issues appear in filings by other senior officials.
Whether those particular facts hold up is almost beside the point for most observers. The real contest is about how much independence the central bank should enjoy and who, if anyone, can discipline its leaders when performance lags. I’ve found that arguments about central-bank independence tend to rest on two pillars that sound stronger in theory than they sometimes prove in practice.
Two Pillars That Rarely Get Examined Closely
The first pillar is empirical. Independent central banks are said to produce lower inflation. The evidence, however, is mixed once you change the sample of countries or the statistical method. A simpler pattern fits the data just as well: places that already respect the rule of law and maintain competent institutions also tend to keep prices steadier. Sound money may come more from sound underlying rules than from simply shielding technocrats from voters.
The second pillar is constitutional. Supporters claim the Fed’s structure fits neatly inside our system of separated powers. Congress holds the power to coin money and regulate its value; it has delegated a great deal of that power. Yet many Fed activities—especially supervision and enforcement—look like classic executive functions. The Constitution places the executive power in a president who must face voters. When officials who exercise that power cannot be removed except for narrow cause, they effectively answer to no one.
Mistakes, excusable or not, cannot be avoided in a system which disperses responsibility yet gives a few men great power, and which thereby makes important policy actions highly dependent on accidents of personality.
– Milton Friedman
That observation, made decades ago, still feels current. An independent central bank concentrates power while spreading responsibility. When policy fails, it is hard to identify who should face consequences. No single official is clearly in charge, and the institution as a whole is protected from ordinary political pressure.
What the Recent Record Actually Shows
After the pandemic shock, the Fed oversaw the highest inflation in roughly forty years. Five years later, inflation remains above the formal target. No one was removed, demoted, or forced to explain the miss in a way that carried real professional cost. At the same time, the institution expanded into areas Congress never explicitly authorized—climate-risk guidance for banks and internal diversity programming, among other initiatives. Bureaucracies tend to do that when no one can effectively discipline them.
The governor now under scrutiny has been on the Board since mid-2022, right when inflation was peaking. She attributed the price surge mainly to supply constraints rather than to monetary policy choices. When the Board later withdrew its climate guidance, she formally objected. None of those positions necessarily meet the legal standard for cause, and the motives behind the removal effort are plainly political. Still, the episode illustrates a deeper structural problem: poor performance carries almost no penalty inside the current system.
- Inflation stayed above target for years with no personnel consequences.
- The institution took on new missions without fresh legislative approval.
- Public accountability remained limited to periodic hearings that rarely change outcomes.
Perhaps the most interesting aspect is how little the debate has shifted even after the inflation experience. Defenders of the status quo still argue that any greater presidential influence would politicize interest-rate decisions. That claim treats a straw man as the only alternative. Neither Congress nor the White House is likely to vote on the federal-funds rate every six weeks. The practical question is who is ultimately responsible when the institution misses its own goals for half a decade.
Accountability Without Day-to-Day Interference
One workable middle path has been discussed for decades: legislate clearer rules for monetary policy so that the public can judge results and elected officials can respond when the rules are broken or produce bad outcomes. A simple, well-defined mandate makes performance easier to evaluate. When the mandate is met, independence is easier to defend. When it is missed for years, some form of accountability becomes legitimate.
Friedman put the idea this way: try to achieve government of law instead of men by writing rules that let the public exercise control through its political authorities while still preventing monetary policy from swinging with every short-term political whim. That is not a call for the president to set the rate at 3 percent or 5 percent. It is a call for someone to answer when the chosen framework fails.
In my experience following these debates, the fear of “politicization” often crowds out discussion of the opposite problem—insulation that lets errors compound. Markets can price political risk; they have a harder time pricing an opaque process whose decision-makers face almost no downside for missing the target. A limited mandate with meaningful consequences for failure would not eliminate judgment, but it would make the judgment more transparent and more reversible.
| Approach | Who Answers | Risk of Short-Term Pressure | Risk of Long-Term Drift |
| Full independence | Almost no one | Low | High |
| Rule-based mandate | Elected officials via legislation | Medium | Lower |
| Direct political control | Current administration | High | Medium |
The table is obviously simplified, yet it highlights the trade-off that rarely gets stated plainly. Pure independence minimizes day-to-day interference but maximizes the chance that mistakes go uncorrected. Pure political control does the reverse. A clear statutory rule sits between them.
Why the Mortgage Allegation Matters Less Than It Seems
Focusing on paperwork errors risks missing the larger design question. Even if the allegations prove accurate, they would still be a narrow ground for removal. The deeper issue is whether the legal standard of “cause” should be the only available lever when an institution systematically misses its primary objective. Most private organizations would not keep a leadership team in place after five years of missing the main performance metric. Public institutions that control the money supply operate under a different logic, and that logic deserves more scrutiny than it usually receives.
Recent psychology research on accountability shows that people perform better when they know someone will evaluate the results and can impose costs for failure. The same principle applies to organizations. When feedback is weak and consequences are remote, effort and attention drift toward secondary goals. That is not a moral failing; it is an ordinary institutional tendency. The Fed’s post-pandemic record is consistent with that pattern.
- Define a simple, observable mandate in statute.
- Publish regular, plain-language assessments against that mandate.
- Create a process short of full removal that still allows meaningful response when targets are missed for extended periods.
These steps would not turn monetary policy into a political football. They would simply make the existing insulation conditional on results. I’ve always thought the strongest defense of independence is performance. When performance is strong, the case for insulation writes itself. When performance is weak for years, the case becomes harder to sustain.
The committee’s eventual recommendation is likely to favor removal. If the president acts, litigation will follow. Courts will once again decide how much special protection the Fed receives compared with other agencies. The June precedent already treated the central bank differently from other executive entities. Future rulings may clarify whether that difference is permanent or temporary.
What Citizens Can Actually Evaluate
Ordinary people cannot judge every technical model inside the Fed. They can, however, judge whether prices are roughly stable over multi-year periods. That is the core promise. When that promise is broken for half a decade, the public has a legitimate interest in knowing who is responsible and what will change. Concentrated power without corresponding accountability is a poor long-term design for any institution that touches every household’s cost of living.
Analogies help here. Think of a referee who cannot be replaced even after consistently missing calls that decide games. Fans eventually lose confidence not because they want to call every play, but because they want the rules enforced fairly and consistently. The monetary equivalent is a framework clear enough that persistent misses become visible and answerable.
The American public cannot afford the simultaneous concentration of power and exemption from accountability.
That sentence captures the practical stakes. Inflation that remains above target for years erodes purchasing power, distorts investment, and hits lower-income households hardest. An institution that faces no internal or external consequence for that outcome is an institution that has little incentive to prioritize the mandate over other projects.
Looking ahead, the Cook proceedings will probably dominate headlines for a while. The more durable question is whether the legal and political system will continue to treat the Fed as uniquely exempt from the accountability rules that apply elsewhere. History suggests that exemptions granted during calm periods are hardest to defend after large policy failures. The current inflation episode supplies exactly that test.
I suspect the debate will outlast any single removal fight. Once the public sees that missing the inflation target for years produces almost no personnel or structural change, support for the existing model of independence weakens. Markets may not price that shift immediately, but political pressure tends to build slowly and then move quickly. The next serious inflation episode, whenever it arrives, will likely arrive with less automatic deference to the institution’s current design.
Practical Implications for Policy Design
A more durable framework would start with a narrower statutory mandate focused on price stability and maximum employment, stated in terms that non-specialists can track. Regular independent reviews—perhaps by a small panel drawn from outside the institution—could assess whether the mandate was met and why. Those reviews would not dictate the next rate decision, but they would create a public record that elected officials could use if they later chose to adjust the legal framework.
Some countries have experimented with similar arrangements. The results are not uniform, yet the better-performing systems tend to combine operational independence with clearer ex-post accountability. The United States has leaned heavily on the operational side and lightly on the accountability side. The inflation of the early 2020s offers a natural experiment in what that imbalance produces.
Critics will say any formal review process invites political second-guessing. That risk is real. The counter-risk—years of above-target inflation with no one responsible—is also real, and it has already materialized. Choosing between the two risks is a political judgment, not a purely technical one. Pretending otherwise has not served the public well.
In the end, the Cook case is a vehicle. The destination is a clearer answer to a simple question: when an institution is given enormous power over the economy, who watches the watchers, and what happens when the watchers fail? The current answer—almost no one, and almost nothing—has been tested by the recent inflation experience. The results of that test are still unfolding.
Readers who follow monetary policy closely already know the technical debates. What has been missing is a plain-language discussion of the institutional incentives. Power without accountability is not a stable equilibrium, even when the people holding the power are competent and well-intentioned. The mortgage paperwork may or may not justify removal. The larger design problem remains either way.
