It is important to appreciate, however, that steps to encourage accountability also offer opportunities for political pressure. The history of the Federal Reserve’s relationship to the rest of government is one marked by efforts by the rest of government both to foster central bank independence and to exert political pressure on monetary policy.
The purpose of this paper is to clarify the relationship of central banks within government, to explain the nature, degree of, and rationale for the independence afforded to many central banks - with a special focus on the role of the Federal Reserve within the US government - and to discuss the balancing of independence and accountability in principle and in practice.