The Federal Reserve is often blamed for financial crisis and economic distress. That tendency to blame the Fed scaffolds the central argument of our book: A cycle of crisis, blame, and reform led Congress to write the Federal Reserve Act in 1913 and continues to drive the Fed’s evolution a century later. We argue in The Myth of Independence that Congress’s power to rewrite the Act—in ways both welcomed and opposed by the Fed—creates two inter-dependent institutions. Congress depends on the Fed to absorb public blame for economic downturns and financial panics. And the Fed depends on Congress as the source of its goals, powers, and tools. By bringing Congress back into the study of the Fed, we sought to question claims that the Fed is an autonomous, apolitical institution. Desmond King challenges our account in several ways.

First, King argues that our analytical focus on Congress’s relationship with the Federal Reserve leaves us insufficiently critical of the Fed’s close ties to financial institutions. According to King, those ties led the Fed to favor Wall Street and the wealthy in the wake of the global financial crisis a decade ago. As we document in Chapter 7, the Fed’s weak supervision of banks surely contributed to the onset of crisis. (Congress was also asleep at the wheel.) But the ways in which legislative politics shape the Fed’s conduct of monetary policy lead us to dispute arguments that the Fed is fully subjugated to financial interests. Congress authorizes the Fed to make emergency loans to banks—not to steer aid directly to homeowners. In a crisis, monetary policy can affect the real economy by pumping credit through the clogged plumbing of the financial system. And evidence from progressive economists suggests that the Fed’s unconventional bond purchases reduced mortgage rates, making working- and middle-class Americans better-off.

Second, King suggests that legislators’ threats to hold the Fed accountable ring hollow in today’s gridlocked Congress. Over the course of Fed history, however, we find ample evidence that the Fed pays a price for failure: Congress and the president typically revamp Fed tools and responsibilities in the wake of crisis. And since the 1970s, Congress has repeatedly imposed more transparency on the Fed—each time over the objections of Fed leaders. Counterfactuals are difficult to establish. But we argue that requiring greater transparency forces the central bank to balance its own views against the policies it believes that Congress and the broader public will support.

Finally, King charges that we largely ignore the Fed’s seizure of fiscal policy in the long, sluggish, postcrisis recovery. But we document in Chapters 7 and 8 how the Fed pushed its legal limits when a divided Congress failed to provide additional fiscal stimulus. Republicans at least saw political upside to inaction—thus leaving monetary policy the only game in town. The Fed’s activism worked: Recent record improvements in labor markets are directly attributable to postcrisis monetary policy. Why is the Fed so focused on employment? Because Congress—as early as the 1940s—directed the Fed to care about both jobs and inflation. That unusual dual mandate seems to have paid off, even for cohorts often left behind in an economic recovery. To be sure, the Fed makes mistakes. But explaining the course of American central banking demands scrutinizing Congress and monetary politics as well.