and economic volatility that is not socially optimal. 11 put another way, it can lead to an unstable economy, on which households and businesses cannot rely. subsequent academic research, including mine, focuses on ways in which the central bank could be designed to prevent this undesired outcome from happening. 12 one of those ways is delegating decisionmaking to a policy committee that is insulated from short - term political pressures. institutional details that enhance insulation include giving see finn e. kydland and edward c. prescott ( 1977 ), “ rules rather than discretion : the inconsistency of optimal plans, ” journal of political economy, vol. 85 ( june ), pp. 473 – 91 ; robert j. barro and david b. gordon ( 1983 ), “ a positive theory of monetary policy in a natural rate model, ” journal of political economy, vol. 91 ( august ), pp. 589 – 610 ; and alberto alesina ( 1987 ), “ macroeconomic policy in a twoparty system as a repeated game, ” quarterly journal of economics, vol. 102 ( august ), pp. 651 – 78. see kenneth rogoff ( 1985 ), “ the optimal degree of commitment to an intermediate monetary target, ” quarterly journal of economics, vol. 100 ( november ), pp. 1169 – 89 ; and christopher j. waller ( 1989 ), “ monetary policy games and central bank politics, ” journal of money, credit and banking, vol. 21 ( november ), pp. 422 – 31. - 7central bankers long terms and prohibiting removal from office for political reasons. this literature provides the theoretical foundations for central bank independence and the importance of central bank credibility. a look across countries is instructive. operational independence with clearly specified goals for monetary policy has become the norm for central banks in advanced economies, reflecting the consensus that has emerged over the past 30 years concerning the benefits of central bank independence. the congress was fully aware of the potential misuse of monetary policy for political reasons, and it purposefully created the federal reserve as an independent central bank. the design features of the federal reserve minimize political influence over monetary policy while still maintaining accountability to the congress and to the electorate for its policy actions. 13 eventually, in 1977, the congress mandated that the federal reserve conduct monetary policy to effectively promote the goals of maximum employment and price stability. by having monetary policy overseen by independent officials, the incentive to misuse

for release on delivery 11 : 00 a. m. edt march 29, 2021 treasury – federal reserve cooperation and the importance of central bank independence remarks by christopher j. waller member board of governors of the federal reserve system at the peterson institute for international economics washington, d. c. ( via webcast ) march 29, 2021 by way of introduction, i spent the first part of my career as an economics professor and researcher. one of my main fields of inquiry was monetary policy theory. i have long been a strong believer in the virtues of central bank independence, and today i will devote my remarks to that topic. 1 as a result of the covid - 19 crisis, tremendous monetary and fiscal measures have been taken to provide economic relief to american households and businesses. the federal reserve took a host of actions, including lowering its policy rate to zero and purchasing securities to support market functioning and provide monetary accommodation. 2 the congress enacted several packages that funded the health response to the pandemic, expanded unemployment insurance, and provided economic assistance payments to households and businesses. 3 the virus also created uncertainty and turbulence in financial markets, which led the federal reserve to establish emergency lending programs to serve as lending backstops and support the flow of credit to households, businesses, nonprofits, and state and local governments. 4 establishing these programs under section 13 ( 3 ) of the federal i am grateful to jane ihrig for assistance in preparing these remarks. these remarks represent my own views, which do not necessarily represent those of the federal reserve board or the federal open market committee. see, for example, the statement issued after the conclusion of the federal open market committee ’ s march 15, 2020, meeting, which is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / fomccalendars. htm. see, for example, the coronavirus preparedness and response supplemental appropriations act, 2020, pub. l. no. 116 - 123, 134 stat. 146 ( mar. 6, 2020 ) ; the families first coronavirus response act, pub. l. no. 116 - 127, 134 stat. 178 ( mar. 18, 2020 ) ; the coronavirus aid, relief, and economic security ( cares ) act, pub. l. no. 116 - 136, 134 stat. 281 ( mar. 27, 2020 ) ; the paycheck protection program and health care enhancement act, pub. l