Throughout the developed world, central banks enjoy a large measure of independence. This is considered desirable because it guards against elected officials’ preference for overly easy monetary policy as a means of generating jobs and votes. But what if the central bank wants easier money than politicians do? This has been the case in the US for much of the past decade, and it raises important questions about how independence should be defined. Consider the situation in late 2010. The Republican party won a huge victory in the mid-term congressional elections, at least in part thanks to voters’ unease with the $800bn fiscal stimulus package the Obama administration adopted the previous year. The newly elected Republicans largely opposed additional stimulus as a way of addressing the protracted recession. Yet one day after the election, with unemployment still close to 10% and inflation falling toward 1%, the Federal Reserve began a new round of bond-buying designed to provide added...
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