There is a political storm brewing with regard to the independence of the Federal Reserve (aka The Fed). Some people correctly point out that the Fed is a tremendously powerful organization in our country, has a large influence over the economy, and as such, should have to answer to the people. The fact that the Fed has no oversight makes them nervous. Who is this "Fed" which has so much control over us, yet does not answer to us in any way?
The Fed is run by a seven-member Board of Governors. The Chairman (currently Ben Bernanke), vice-chairman, and the remaining five members are appointed by the President of the United States in staggered 14-year terms, one governor every two years. It was set up this way so that it could make decisions detached from political consideration. The Chairman serves a four-year term but can be re-appointed by POTUS as long as the total of 14 years is not exceeded. In any given presidential term, POTUS can only appoint two members of the board, making it impossible to stack it in his own favor.
The idea is that the Fed should be like the Supreme Court of the United States (SCOTUS), above the fray of politics. Each governor's job is secure for 14-years, which spans 7 congresses, more than two senate terms, and more than three presidential terms.
Like SCOTUS, its members are appointed by the President. But as one of the three branches of government, SCOTUS is subject to checks and balances. If SCOTUS does something really wacky, then it can be overruled by Congress (the people) via constitutional amendment.
The Fed is different. In a way, it's much easier to overrule the Fed than SCOTUS. The Federal Reserve does not exist in our constitution. It was created by Congress in the Federal Reserve Act of 1913 (at the encouragement of progressive icon Woodrow Wilson). As such, Congress has the power to change the Fed's charter if it gets out of line. But there's the rub. How do we know when the Federal Reserve is out of line? It operates within a shroud of secrecy, so no one ever really knows the nature and extent of its activities.
Many people are now calling for greater oversight of the Fed by Congress. We need to be careful, though, because this is a two-edged sword. Do we really trust politicians in Congress enough to have them influencing monetary policy without it being based on their own personal political concerns?
I think not.
The Fed should continue to be completely independent with regard to its monetary policy. They should do what they do based on their own best judgement, without any consideration to political consequences. However, once any decision is made and implemented, it should be part of the public record and open to bright sunshine pouring onto it. GAO should be able to do audits after-the-fact, and the American people should be able to know exactly what the Federal Reserve did on their behalf.
Then, if it turns out that they did something really wacky, we can pressure Congress to modify their charter to prevent that same sort of behavior in the future. This is America. Every nook and cranny of government must ultimately answer to the people.