Question

In: Finance

What factors limit the independence of the Federal Reserve?

What factors limit the independence of the Federal Reserve?

Solutions

Expert Solution

Factors which are limiting the independence of Federal Reserve are as follows-

A. Federal Reserve is always working in synchronisation with the government and Federal government influences its decision-making to large extent.

B. Federal Reserve is also accountable for its decision making to Congress and it needs to report all of its decision to Congress.

C. Federal Reserve is also pressurized by government to always go for quantitative easing because it will help them fetch more votes.

D. Federal Reserve is also holding various private securities in its books of account so it is always working for market interest.

E. Federal Reserve is not able to predict with the changing economic situations in advance and they are losing through wrong policy formations.

F. Federal Reserve is also trying to increase employment in the economy, and for that it needs to always stimulate the economy at the time of crisis.

These will be limiting the overall efficiency and independence of Federal Reserve.

jeff jeffy answered 2 years ago
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