Question

shoukd tje autonomy of the federal reserve syatem be preserve? discuss the argument for and against.

Answer 1

There is often conflict between federal reserve and the government because the government wants the federal reserve to reduce the interest rates to increase the business activity in the economy but federal reserve does not always stand by the side of the government on this issue. The major argument to preserve the autonomy of the federal reserve is that the objective of federal reserve is to maintain price stability in the economy. The autonomy of the federal reserve should be preserved to protect it from the political pressure to achieve their election agenda. The federal reserve is supervised by the congress so that it is achieving its objective of price stability. Federal reserves do not receive funding from outside. Preserving the autonomy of federal reserve will help in it focusing on long term sustainable growth of the economy rather than adjusting its policy for the gain of political establishments in election. Its autonomy can actually help it implement unpopular policies which are important for greater public interest. The argument against its autonomy is that federal reserve can not act in isolation, it should fall in line with the government objectives as the government representatives are democratically elected while federal reserve board and its chair is appointed. Some also point that federal reserve being an independent government agency has too much power to influence the economy.