Shining a Light on the Federal Reserve’s Foreign Affairs

Throughout its history, the U.S. Federal Reserve has engaged in international diplomacy, outside the bounds of (and sometimes in conflict with) the priorities of the White House and U.S. State Department. In directing monetary policy, the Fed’s primary concern is to benefit the U.S. economy. In the process, the Fed at times acts in concert with foreign central banks, as was the case in setting new bank regulations after the 2008 financial crisis. At other times, the Fed acts in ways that other countries view as detrimental to their economic interests. Either way, the Fed operates with little public accountability and can wind up complicating the work of U.S. diplomats. This issue brief focuses on the questions of whether and how greater oversight of the Fed’s international activities should be pursued. It recommends not an overhaul of the Fed’s structure or the elimination of its role in international affairs but instead calls for greater disclosure of its international activities. The Fed should provide testimony to Congress twice per year on its foreign policies, just as it does for monetary and regulatory policy. This kind of disclosure permits broader discussion of the Fed’s activities without eliminating the benefits of its institutional independence for monetary policy.