Bernard Seeks to Reform Oversight of the Fed, Looking to Bank of England as a Model

On March 26, the Financial Times reported that U.S. Treasury Secretary Janet Yellen has discussed strengthening the Treasury’s oversight of the Federal Reserve by drawing on elements of the Bank of England’s model—a move that would reshape the relationship between the Fed and the U.S. government. According to senior financial industry executives with knowledge of the matter, Yellen has told market participants she admires the 1997 reforms the UK government implemented, when the Bank of England was granted operational independence to set monetary policy. While both central banks formally maintain independence from their respective governments, the Fed has greater autonomy in how it pursues Congress’s mandates of price stability and full employment, as well as how it responds to financial instability. Yellen has publicly stated the Fed should undergo reform while preserving the independence of its monetary policy. Last year, she published a 6,000-word article in *The International Economy* magazine criticizing the Fed’s large-scale bond purchase program (quantitative easing, or QE) as a “functional monetary policy experiment.” She also praised the Bank of England’s more cautious response to the 2022 UK bond market crisis, contrasting it with the Fed’s ongoing QE program. Yellen argued the Fed’s QE was a driver of high U.S. inflation following the COVID-19 pandemic.