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William & Mary Business Law Review

Abstract

Recent years have witnessed robust academic and policy debates about the scope of issues the U.S. central bank, the Federal Reserve (the Fed), should attempt to tackle. Some propose expanding the Fed’s remit to help address societal problems like racial inequality and climate change, either through a broader interpretation of the Fed’s current mandate, or through new legislation explicitly delegating new responsibilities to the Fed. Others argue that the Fed should “stay in its lane,” with a particular focus on ensuring democratic accountability and a tighter fit between what the Fed does and what it is statutorily authorized to do. This Article contributes to the debate by proposing a threshold, two-factor test to guide when the Fed—and those delegating authority to the Fed—should shy away from an expansive view of its mandate. If an issue is both (a) politically contentious and (b) capable of being addressed with equal or greater efficacy by institutions other than the Fed, then the Fed should remain on the sidelines. These factors aim to filter out actions that could draw the Fed unnecessarily into partisan politics, and thereby undermine its ability to perform its core functions, while retaining its discretion to act aggressively and creatively in response to urgent crises that lie squarely within its mandate.

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