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In response to the greatest financial crisis since the Great Depression, the Federal Reserve (the Fed) took a number of unprecedented steps to try to minimize the adverse economic consequences that would follow. From providing liquidity injections to save companies like Bear Stearns and American International Group (AIG) to committing to a prolonged period of exceptionally low interest rates and buying massive quantities of longer-term securities to further reduce borrowing costs, the Fed's response to the 2007 through 2009 financial crisis (the Crisis) has been creative and aggressive. These actions demonstrated that the Fed is uniquely powerful among federal agencies, and its authority is even greater than most had previously appreciated.1 They also made clear that the Fed's actions can have significant distributional consequences, in addition to affecting the health of the overall economy.2 These developments have led many to suggest that the Fed should be far more accountable, or less powerful, than it currently is.3

Attacks on the Fed's power are not new. Vesting so much power in the hands of an unelected few inevitably raises questions about legitimacy, for which there are no easy answers. Using traditional mechanisms to make the Fed more politically accountable could substantially impede the Fed's capacity to achieve the aims assigned to it.4 Yet, as reflected in the demise of the First and Second Banks of the United States, ignoring these concerns can prove even more detrimental. In the United States, the outer limits of independence are delineated by the Constitution,5 but important questions regarding legitimacy and accountability arise far shy of the Constitution's outer bounds. Many of these issues are not specific to the Fed, and there is a robust body of literature examining these dynamics.6 Nonetheless, this article suggests that many of the forces that influence the degree of independence that the Fed enjoys in practice are largely overlooked in much of this literature.

Those overlooked forces are "soft constraints," a range of forces that are not legally binding and that can even be a little fuzzy in application, but that nonetheless impose meaningful limits on how the Fed exercises its seemingly vast authority.7 This article illustrates the power of soft constraints by examining the role that two particular soft constraints-principled norms and the Fed Chair's concern with her reputation-have played in shaping Fed action over the last hundred years.