The clock that must not be allowed to stop

National Review makes the case that the Federal Reserve must retain discretion to respond to major events as they unexpectedly occur. I find myself — perhaps to the surprise of those who regard me as a man of rules — in firm agreement. A central bank that cannot move when the storm arrives is not a bank; it is a monument.

When I designed the First Bank of the United States, my critics accused me of assembling a machine of tyranny. What I was assembling was a machine of responsiveness — an institution capable of acting where the market had frozen and the Treasury stood exposed. The great danger was not that the Bank would act too boldly; it was that without it, the Republic would stand helpless before the next financial shock, as it had stood helpless before so many before 1791. The National Review piece, as I read its lead, takes the same view of the Federal Reserve today.

Those who would strip the Fed of discretion and bind it to a fixed rule — whether a strict inflation target, a commodity standard, or a legislated formula — are making a bet that the future will be legible. History does not reward that bet. Panics, wars, supply shocks, sovereign defaults: these arrive without notice and without regard for the rules the last Congress wrote. A lender of last resort that cannot lend at the last resort is no lender at all. I mark it as inference, not recollection, that recent debates over Fed independence have intensified under political pressure — but the principle does not require modern specifics to stand on its own feet.

I will grant this much to the critics: discretion without accountability is a different danger. The Bank I founded was chartered, examined, and answerable to Congress. Discretion exercised in the dark, by governors who answer to no one, is not what I defend. What I defend is bounded discretion — broad enough to act in a crisis, narrow enough to be reviewed and, if necessary, corrected. Transparency of decision and accountability of officers are not enemies of an energetic central bank; they are its legitimacy.

Public credit, once established, must be defended jealously. A central bank visibly crippled by political interference — or by statutory straitjackets that prevent it from acting when action is most needed — tells every creditor, foreign and domestic, that the United States cannot be trusted to manage its own monetary affairs. That message is paid for in higher borrowing costs, not once, but compounded, year after year, for a generation. The price of a feeble central bank is not paid on the day the rule is written; it is paid on the day the crisis comes and the bank cannot move.

My recommendation is plain: preserve the Federal Reserve's operational discretion, reinforce its accountability to Congress and the public, and resist any effort — from any quarter, executive or legislative — to reduce it to a rule-following automaton. Energetic institutions, properly checked, are what separates a nation that weathers crises from one that is broken by them.