Question

We have been discussing the structure of and tools used by the Federal Reserve Bank (Fed). If it were up to you, what directions would you give to the Fed regarding policy goals and targets. Would you change the current Fed?; Leave it alone?; Close it?...

Support your opinion within an economic framework.

Answer 1

Fed is apex institution in banking and financial system of USA. Fed has twin objectives of price stability and full employments. There is strong tradeoff between these two objectives of Federal Reserve. it has to establish balance between these two.Right now US economy is operating above the potential level, hence , in such condition, Fed must keep watch on potential rise in price level or price stability must be priority. Thus, Fed being monetary policy operators, it must more concentrate on price stability. Employments causes can be addressed through fiscal policy as well. Put different, Fed must accord top priority to price stability rather than full employments.

Presently, Fed is acting autonomously and its working is free from political interference, Thus, it must operate like this. Closing Fed would not be right measure. Since Fed has played significant role in moderating negative effects of recession in 2008-09. future financial crisis or imminent crisis can be averted smoothly with help of Fed.