Because the chairs of the Federal Reserve Board can have an enormous impact on policy decisions...

Because the chairs of the Federal Reserve Board can have an enormous impact on policy decisions of the Fed and thereby the economy, their selection has been the subject of great political interest. Politically motivated monetary policy could be a ruinous economic policy. Previous Fed chairs have understood their functional independence from congressional interference depends on the apolitical nature of their decisions. What would the economic consequences be if this balance was upset by a president who nominated a Fed chair dedicated to protecting the president’s political party?

Expert Solution

The Federal Reserve was established in the year 1913 by America, as a result of the recession which kicked in the country back then. The main aim was to stabilize the economy and present an independent organization which was not under direct government control.

The need for the Federal Reserve to not have any political interest is that any action by the Federal Reserve has a huge impact on the nature of the economy and the demand and supply of money thereof. A wrong decision can seriously hit the credibility of the organization and can lead to serious ramifications for a country wherein inflation could rise, unemployment could increase or the overall GDP may take a serious hit if politically motivated decisions are taken.

For example, if the President was elected on the chair of the Federal Reserve, and the elections were near, the politically motivated decision could be to reduce the interest rates further. Considering that an economy was already experiencing inflation. This would result in a situation wherein hyperinflation may come into existence in which the value of the currency may fall rapidly in the near future.

Thus, as Monetary Policy decisions may happen with a lag and have serious ramifications if implemented incorrectly, it is recommended throughout every country that the Central Banking agency be left alone without the interference of the government at large to avoid political economic mistakes.

Please feel free to ask your doubts in the comments section if any.

Rahul Sunny answered 7 months ago

Monetary Policy: You are a Governor on the Federal Reserve Board. Now indicate to the class...

Monetary Policy: You are a Governor on the Federal Reserve Board. Now indicate to the class what the last two digits of your phone number are. These numbers will represent the inflation rate and the growth rate of the US economy respectively. Provide your own unemployment rate scenario that would be consistent with these inflation and growth numbers. Given this scenario, discuss the economic situation in the country. Is it an extraordinary economic environment or a rather plausible occurrence in...

The Federal Reserve Board of Governors recently changed the reporting of its stance on monetary policy...

The Federal Reserve Board of Governors recently changed the reporting of its stance on monetary policy from what they termed a "policy bias" to a "balance of risks". A researcher wished to see whether there had been a change in the way financial analysts were interpreting the change in reporting. When the "policy bias" reporting method was used, it was known that only 30% of the Board's decisions were correctly anticipated by analysts in their reports. For the "balance of...

First, please summarize the current monetary policy stance of the Federal Reserve, and the decisions announced...

First, please summarize the current monetary policy stance of the Federal Reserve, and the decisions announced at the most recent FOMC meeting. Second, discuss their likely implications in the aggregate supply-aggregate demand framework. Make reference to specific passages or pages in the textbook in your answer.

QUESTION 1 If the Board of Governors of the Federal Reserve increases the reserve requirement then...

QUESTION 1 If the Board of Governors of the Federal Reserve increases the reserve requirement then the money supply will decline. True False QUESTION 2 If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to 10 times its excess reserves. 10 percent of its excess reserves. its excess reserves. its total reserves. QUESTION 3 In the simple deposit expansion model, an expansion in checkable deposits of...

How can changes in the federal reserve policy affect a small business?

Identify the three significant interest rates for Federal Reserve Board policy-making. Explain your answer.

The Federal Reserve and Monetary Policy" Visit the Federal Reserve website and answer the following questions...

The Federal Reserve and Monetary Policy" Visit the Federal Reserve website and answer the following questions in your own words. Part 1: What is the mission and legal mandate of the Federal Reserve System? What policy tools are available to the Fed to achieve its mission? What is the difference between an insolvent bank and an illiquid bank? Why/how does the Fed treat banks that are insolvent differently from illiquid banks? Part 2: The Fed has only increased the interest...

. Assume you are the chairman of the Board of Governors of the Federal Reserve. The...

. Assume you are the chairman of the Board of Governors of the Federal Reserve. The economy is in the midst of a recession. What type of monetary policy would you advocate? What tools would you use to implement said policy? Be specific in your response as to how the tools would work to accomplish your objectives.

Discuss the impact of Federal Reserve Bank (Fed)’s the interest rate cut policy on the stock...

Discuss the impact of Federal Reserve Bank (Fed)’s the interest rate cut policy on the stock market recently

Should the Federal Reserve Be Independent? While fiscal policy is voted on by Congress and can...

Should the Federal Reserve Be Independent? While fiscal policy is voted on by Congress and can easily get caught up in partisan political infighting, monetary policy is supposed to be immune to this type of politics. In fact, it is said that the Federal Reserve is independent. 1) Is the Federal Reserve independent? 2) Can it truly be? 3) Should it be? 4) Why is important or not important for the Fed and monetary policy to be independent? 5) Do...

Question