Question

Is the Federal Reserve Bank independent? Explain the various checks and balances on its operations, if any.

Answer 1

The Federal Reserve Bank, like many other Central Banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress. The Congress established maximum employment and stable prices as the key macroeconomic objectives for the Federal Reserve in its conduct of Monetory policy.

Thus, while the Federal Reserve was created to run Monetory policy, it was given a complicated system of checks and balances to deal with conflicts between the states and the Federal government, as well as between the legislative and Executive branches of Federal government.

The Federal Reserve system operate a nationwide check clearing system that processes checks, drafts and similar items. When a depository institution receives deposits of checks drawn on other institutions, it may send the Checks for collection to a Federal Reserve bank. Today, the Federal Reserve receives almost all the checks it processes for clearing as electronic check images, exchange checks, in paper or electronic form, with a group of banks participating in clearhousing arrangements or forward the paper checks or images of the checks to a Federal reserve bank for collection.

The Federal Reserve operates with a sizable balancesheet that includes a large number of distinct assest and liabilities. The Federal Reserve's balancesheet contains a great deal of information about the scale and scope of its operations. The Fed balance sheet is a report that essentially outlines the factors that affect both supply and the absorption of Federal Reserve funds. The Fed balance sheet report reveals the means the Fed uses to inject cash into the economy,