Question

How was the governance of the Federal Reserve constructed in order to avoid potential abuse of power and balanced representation? In what ways has the Federal Reserve system worked? In what ways has the Federal Reserve system not worked?

Answer 1

ANSWER:

• Since monetary policy operates with significant time lags, achieving this aim allows monetary policymakers to take a longer-term view when making their decisions. Policymakers in an independent central bank are better able to take such a view, with a mandate to achieve the best possible economic results in the longer term. In comparison, policymakers in a central bank subject to short-term political influence may face pressure to over-stimulate the economy in order to achieve short-term production and job gains that outweigh the underlying potential of the economy. Such gains may at first be common, but they are not sustainable and will soon evaporate, leaving behind only inflation which aggravates the long-term prospects of the economy. Political monetary policy activity can, therefore, create undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.
• Central banks frequently commit to maintaining low inflation on a long-term basis; if such a commitment is viewed by the public as credible, it will tend to be self-fulfilling, as inflation expectations will be small and higher wages result from factors other than the need for households to adapt to higher living costs. Therefore, if inflation expectations are low, employees can mitigate their demands for higher wages and, if labor costs remain stable, businesses can mitigate their demands for higher prices
• If the decisions and actions of a central bank are not considered credible, businesses and consumers will expect higher inflation, and workers will there since monetary policy operates with significant time lags, achieving this aim allows monetary policymakers to take a longer-term view when making their decisions. Policymakers in an independent central bank are better able to take such a view, with a mandate to achieve the best possible economic results in the longer term. In comparison, policymakers in a central bank subject to short-term political influence may face pressure to over-stimulate the economy in order to achieve short-term production and job gains that outweigh the underlying potential of the economy. Such gains may at first be common, but they are not sustainable and will soon evaporate, leaving behind only inflation which aggravates the long-term prospects of the economy. Political monetary policy activity can, therefore, create undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.
• Central banks frequently commit to maintaining low inflation on a long-term basis; if such a commitment is viewed by the public as credible, it will tend to be self-fulfilling, as inflation expectations will be small and higher wages result from factors other than the need for households to adapt to higher living costs. Therefore, if inflation expectations are low, employees can mitigate their demands for higher wages and, if labor costs remain stable, businesses can mitigate their demands for higher prices
• If the decisions and actions of a central bank are not considered credible, businesses and consumers will expect higher inflation, and workers will, therefore, demand higher wages, and businesses will demand higher price increases. Therefore, a lack of central bank autonomy will lead to higher inflation and inflation expectations in the longer term, with no large-scale compensation benefits The Obama administration has never planned a comprehensive response to the recession in housing, and even if it had, Republican opposition in Congress would have prevented intervention. Once again, the Fed has assumed responsibility for undermining the rest of the government. Despite near-zero short-term interest rates, the Fed extended its asset purchases to cover long-term bonds — trillions of dollars over several rounds of what became known as "quantitative easing."
• Low bond yields drove buyers into the stock market, exacerbating the divide between Wall Street and the rest of the economy. Financial instability issues have grown as low-interest rates have allowed borrowers to take on more risk with borrowed money. Meanwhile, dollars flooded emerging economies ' financial markets, threatening to overwhelm unprepared networks for a capital inflow that could leave as quickly as it came. fore demand higher wages and businesses will demand higher price increases. Therefore, a lack of central bank autonomy will lead to higher inflation and inflation expectations in the longer term, with no large-scale compensation benefits The Obama administration has never planned a comprehensive response to the recession in housing, and even if it had, Republican opposition in Congress would have prevented intervention. Once again, the Fed has assumed responsibility for undermining the rest of the government. Despite near-zero short-term interest rates, the Fed extended its asset purchases to cover long-term bonds — trillions of dollars over several rounds of what became known as "quantitative easing."
• Low bond yields drove buyers into the stock market, exacerbating the divide between Wall Street and the rest of the economy. Financial instability issues have grown as low-interest rates have allowed borrowers to take on more risk with borrowed money. Meanwhile, dollars flooded emerging economies ' financial markets, threatening to overwhelm unprepared networks for a capital inflow that could leave as quickly as it came.