The Federal Reserve should be independent from political pressure in designing and implementing monetary policy
Part 1: Respond to the discussion below:
• “The U.S. Congress and the President should have enough leverage and power to control the Federal Reserve’s actions in both the short and long run.”
• “The Federal Reserve should be independent from political pressure in designing and implementing monetary policy.”
*** 150 + Words response ***
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Part 2: Respond to classmate’s response below:
“I believe that since its inception in 1913, our forefathers and their predecessors in the U.S. Congress had the insight from other central banking institutions from Europe that closely resemble our own to rightfully give the FED its independence from political pressure in designing and implementing monetary policy. The main reasons I would argue are the time consistency problem and trust in monetary policies. Successful monetary policy requires a long time horizon (1). Our elected politicians tend to think in short term horizons of their re-election. This type of thinking can initiate incredible harm for the long term effects of the economy for short term gain. We see this this today with POTUS tweeting about the FED chairman on lowering interest rates when the stock market dips for political gain. Politicians cannot even agree on fiscal policy, and their track record for fiscal policy is not so good. Just look at our national debt.
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Trust in an independent FED for monetary policies is even more important. As we know, if consumers, creditors, lenders, and borrowers lose faith in monetary policy (like the Great Recession scenarios) the whole system can stall and possibly collapse. I would argue that an independent committee like the FMOC, which is constructed of educated and seasoned economists, bankers, and financiers (ie; experts), should be at the helm of something so vital to our way of life. Would you want a politician to perform surgery on you, or a trained surgeon? The independence of their decisions and control of their own budgets are vital to implementing their policies so that they can do their job without fear of reprisals from politicians. This trust is shown through their transparency and accountability, albeit economic jargon, we see the FMOC publish goals and publicly report progress, and update these reports as needed. This gives the general public, business, and financial players a road map for our economy and foreign economies, so they can make financial decisions based on sound judgment. I would assume that the these public servants get very few accolades for a job that is so very important for our standard of living and way of life. ”
*** 50 + Words response ***
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