The President, the F ed, and the Financial Crisis

The active role of the F ederal R eserve ( F ed) in responding to the financial crisis has provoked questions not only about its policies' economic wisdom but also about the political significance of the F ed's exercise of expanded power. This article places the F ed's actions into perspective, framing three counterfactuals that yield different vantage points on the key question: Have the F ed's actions in the financial crisis and beyond amounted to a “power play” intended to marginalize elected authorities in the management of the national economy? I begin with an overview of the relationship over the postwar period between the F ed and the presidency, and then employ this historical baseline in analyzing three key episodes: the response to the crisis as it emerged during the final years of the Bush administration, the surprising decision by the O bama administration to continue the policy trajectory set by the actions of the F ed and his R epublican predecessor, and the stabilization policies implemented by the F ed since the onset of the financial crisis. I find no strong evidence that the F ed's actions exceeded the rubric expected on the basis of its evolving responsibility to meet emergencies in a financial marketplace where the pace of innovation is high and in the context of political party polarization that has stalemated fiscal policy.