Who Influences the Fed? Presidential Versus Congressional Leadership

Abstract

This paper examines political influences over U.S monetary policy, analysed quarterly from 1953 to 2000. We use indicators of presidential and congressional ideology as predictors of actor preferences and as representative of overhead democracy. We also include several economic variables predicting percent change in the federal funds rate. While not surprised to find that economic conditions are important in explaining Fed decisionmaking, we also find that the theory of overhead democracy also contributes to the explanation. Initially, both presidential and congressional ideology are important but in a combined model, presidential variables wash out influence of congressional variables. Thus, we conclude that overhead democracy must be included in models predicting Fed decisionmaking.