Definition
The principle that the Federal Reserve sets interest rates without needing approval from the President or Congress.
The story
Congress gave the Fed its goals, the dual mandate, and oversees it, but its rate decisions don't have to be approved by elected officials. Governors serve long, staggered terms, and the Federal Reserve Act says they can be removed only "for cause." The idea is to keep short-term political pressure out of decisions about inflation.
Why markets watch it
Markets watch any sign of pressure on the Fed, because confidence in its independence affects inflation expectations and long-term rates.
Connects to
The Federal ReserveBoard of GovernorsDual mandateInflation expectations
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms