of central banking depart from reality. this may be unavoidable. the best theories are simple. the reality of central banking is complicated. the fed is a complex entity governed by numerous statutes that have changed many times in the last 100 years — and are still changing. the federal reserve is not just a concept. it is a creation of congress. its job is what congress tells it to do — to adhere as closely as possible to the will of congress. of course, congress's instructions sometimes leave room for interpretation and discretion. for example, section 13 ( 3 ) of the federal reserve act allows the board of governors to provide credit during " unusual and exigent circumstances. " what are those? and how do we know when circumstances cease to be unusual and exigent? theories can help resolve these ambiguities and guide the judgment of policymakers. other times, congress is clear, but its instructions do not fit neatly into theories of central banking. in designing its section 13 facilities, the board of governors coordinated its policy decisions with the department of the treasury. this was required by law. in the dodd - frank wall street reform and consumer protection act, congress required the board of governors to consult with the secretary of the treasury on regulations to implement its emergency powers. 20 it also required that the board of governors obtain the approval of the secretary of the treasury before extending emergency credit. 21 to some extent, the dodd - frank act codified reality. the board of governors and the department of the treasury worked closely throughout the financial crisis of 2008. but congress formalized a degree of cooperation that can make it hard to draw a theoretical line between monetary and fiscal authority — or between an independent agency and a political department. i should add that this working relationship between our country's monetary and fiscal authorities deepened following the coronavirus aid, recovery and economic stimulus act — known as the " cares act. " that statute appropriated roughly $ 2 trillion in economic relief. congress sent about a quarter of that money to the treasury for investments in federal reserve programs and facilities. i look forward, in the fullness of time, to more theoretical discussions about the proper role of a central bank in administering emergency economic relief. some of this dialogue has already begun. 22 questions that catch my interest include : what should be the guiding principles and constraints on the design and establishment of 13 ( 3 ) facilities? how should we think about moral hazard and the long term effect of the use of the federal

sought to insulate from political pressures. the notion that the federal reserve ’ s financial dealings are somehow kept hidden from the public is a surprisingly widely held view – and it is simply incorrect. an independent outside audit of the federal reserve ’ s books is conducted annually. you can find the results online, including a detailed accounting of the federal reserve ’ s income and operating expenses in its annual report. the financial books of the regional federal reserve banks also undergo independent outside audits, also available online. in addition, the gao is empowered to review almost all federal reserve activities other than the conduct of monetary policy, including the federal reserve ’ s financial operations, which the gao has done so frequently. the federal reserve ’ s balance sheet is posted online weekly, with considerable detail, in what ’ s called the h. 4. 1 report. finally, an additional accounting of the federal reserve ’ s emergency lending programs created over the last two years is available online in a monthly report. but my objection that gao oversight would be broadened to include a review of monetary policy decisions is not based just on the fact that the fed is already subject to considerable oversight. my principal concern is the damage that could potentially result to the fed ’ s ability to achieve its mandate of price stability and maximum sustainable employment. the effectiveness of monetary policy depends most of all on the federal reserve ’ s credibility with market participants and investors. in particular, both groups need to know that the fed will always act to keep inflation in check. that ’ s why fed chairman william mcchesney martin famously joked that the fed would sometimes need “ to take the punchbowl away just as the party gets going. ” as you can well imagine, this may not always enhance our popularity, especially among those who were enjoying the party. but, the fact that markets know that the federal reserve will tighten monetary policy when needed helps keep inflation expectations in check. this, in turn, helps keep inflation low since inflation expectations affect actual inflation. the consequence is credibility with respect to the conduct of monetary policy. this gives the fed more latitude not to tighten when inflation rises for transient reasons – say, due to a short - lived spike in oil prices – and more scope to ease credit to support the economy during economic downturns. recognizing these benefits, congress wisely acted many years ago to exempt monetary policy decisions from the gao ’ s wide powers to review federal reserve activities. congress ’ decision to bolster the fed ’ s monetary policy independence has been