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In: Finance

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

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

Solutions

Expert Solution

The Federal Reserve, like other central banks of the countries, is an independent government agency. But it is ultimately accountable to the public as well as the Congress. It remains independent in order to be free from short-term political pressures.

Checks and balances on The Federal Reserve

The structure of Federal Reserve is incorporated with a strong system of checks and balances. This system includes the Board of Governors Federal Reserve and regional Reserve banks. The Fed is required to report regularly to Congress on its actions but Congress would not try to influence the decisions of the Fed. This reporting system helped the Fed to be independent but at the same time it is accountable and transparent to the Congress. The Congress made long tenure of office for the Board of Governors which made the more accountable.

The checks and balances, along with the structure, are to ensure that it is free from partisan interests and the decisions taken by Federal Reserve represent the interests and needs of the entire United States.


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