Christopher J Waller: Treasury-Federal Reserve cooperation and the importance of central bank independence

Remarks (via webcast) by Mr Christopher J Waller, Member of the Board of Governors of the Federal Reserve System, at the Peterson Institute for International Economics, Washington DC, 29 March 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
30 March 2021

By way of introduction, I spent the first part of my career as an economics professor and researcher. One of my main fields of inquiry was monetary policy theory. I have long been a strong believer in the virtues of central bank independence, and today I will devote my remarks to that topic.

As a result of the COVID-19 crisis, tremendous monetary and fiscal measures have been taken to provide economic relief to American households and businesses. The Federal Reserve took a host of actions, including lowering its policy rate to zero and purchasing securities to support market functioning and provide monetary accommodation. The Congress enacted several packages that funded the health response to the pandemic, expanded unemployment insurance, and provided economic assistance payments to households and businesses.

The virus also created uncertainty and turbulence in financial markets, which led the Federal Reserve to establish emergency lending programs to serve as lending backstops and support the flow of credit to households, businesses, nonprofits, and state and local governments. Establishing these programs under section 13(3) of the Federal Reserve Act required substantial cooperation between the Department of the Treasury and the Federal Reserve.

The Congress has provided spending of roughly $5.8 trillion during the past year to deal with the pandemic and its effects on the economy. This action has pushed the ratio of publicly held U.S. debt to nominal gross domestic product to more than 100 percent for the first time since World War II. The Federal Reserve's holdings of U.S. government debt has risen to around $7 trillion, with about $2.5 trillion of that total resulting from its asset purchase program aimed at smoothing credit market functioning and providing monetary accommodation.