Question

Give two reasons that support the independence of the Federal Reserve Bank and two reason against such independence.

Answer 1

The advantage of federal reserve bank being independent is that their decision on finance are no more needed to be ratified by the President. Independence of federal reserve bank makes it more easier to implement monetary policies favoured to the public interest despite whatever the political interest may be. Now the federal reserve is free from political pressures. It also helps to generate better inflation outcome without damaging the economic growth.

Some of the reasons to argue against the independence of federal reserve bank is that it is quite undemocratic when no political control is implied. Political intervention can sometimes help to take a corrective measures on monetary decisons. Another problem on independent federal reserve is that the central bankers are unelected. And also the monetary and fiscal policies may have conflict sometimes as they both are controlled by different interests.

Thanks.