Do you think that the Fed should control interest rates or let the free market set...

Do you think that the Fed should control interest rates or let the free market set the rates? What are the pros and cons of having the Fed or free-market determine interest rates?

Solutions

Expert Solution

I believe, Fed should control the interest rates.

Pros of Fed controlling the rates:

It's one of the montary policy measures which is one of the important tools to control inflation. Hence. when the inflaton gets very high/low, Fed can intervene & try to control it with the help of changing interest rates.
Interest rate change has to be in sync with the fiscal policy measures taken by the government - Fed does exactly that.
Interest rates can also be a tool to maneuver exchange rates (Interest rates & exchange rates are positively related)
Similarly, it helps controlling bond prices

Cons of Fed controlling the rates:

If Fed controls the interest rates then it's not truly a free market - essence of capitalism.
Without Fed's intervention, the market would reflect a true picture.
More transperancy in identifying driving factors of the economy.
Lesser chances of manuplating markets.

jeff jeffy answered 1 year ago

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