While the Federal Reserve is an independent entity, it is still subject to the political process. In an extreme case, the U.S. Congress could rewrite and pass laws that govern how the Federal Reserve does its job.
In this discussion, identify a potential change (for example, targeting interest rates or targeting the balance of the money supply in the economy) you would make to how the Federal Reserve operates and explain why you would change it.
In response to your peers, explain whether you agree or disagree with your classmate’s suggested change and why.
Response to sara d
Hello Everyone,
Although maintaining independence from the government is crucial to the integrity and
success of the Federal Reserve, some communication would be beneficial to improve the
responses to steer the economy. More discussion on the effects of potential fiscal policy versus
monetary policy, and their potential drawbacks, could help re-mediate the sometimes-kneejerk
reactions by the Fed to keep the economy going. In the recession of 2008, the Fed drastically
lowered the funds rate from 2.97% to .79% in just three days (FRED. 2020.). This margin was
meant to quickly reverse the destabilization of the market, but all rate changes take time. As the
market was catching up to this reduction, the Fed further reduced the rate to .11% by the end of
that year, all while unemployment continued to rise. Before these major monetary policy
changes could truly hold, the new administration introduced the American Recovery and
Reinvestment Act of 2009. This fiscal policy was designed to pump $787 billion back into the
economy through tax cuts, various employment initiatives, and health care (Amadeo, Kimberly.
2019, July 30.). Unemployment stayed relatively steady for the following three years, making
me question if the heavily reduced funds rates were appropriate, in conjunction with the Act
established in the Obama Administration. If there were more communication on the coupling of
policy establishments, less debt could be added to the government budget during economic
crises, and the rate could fluctuate in smaller increments. Two bold policies can exacerbate any
downward trend for the economy, as people are able to right their own ships quickly, and less
money is forced back into the economy to perpetuate investments.
Thank you,
Sara Duffina
References
Amadeo, Kimberly. (2019, July 30.) ARRA, its details, with pros and cons. Retrieved
from https://www.thebalance.com/arra-details-3306299
Federal Reserve Bank of New York, Effective Federal Funds Rate [EFFR], retrieved
from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/EFFR,
January 28, 2020
U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED,
Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNRATE, January
28, 2020
Response to nicholena s
Hello everyone,
If I were to implement a change on the Federal Reserve, it would be to add some regulations so
that the tax rates do not fluctuate so severely in a time of crisis. The reason I would do this is
because of how the Federal Reserve responded to the possible recession that was to occur
from 2000-2001, the country was expecting a possible recession from 2000-2001 so the Federal
Reserve attempted to be proactive and decided to lower the Federal Funds Rate in an attempt
to boost the economy (Carr & Beese, 2008). The biggest problem was when the rate went up
over and over, and over. The Federal Reserve over reacted and it left the economy in a
recession that lasted longer than it should have. How did this happen? The Federal Reserve
makes the monetary policy decisions, and does not have to run it by the president or anyone
else. I believe if the Federal Reserve had some boundaries or restrictions, things may have
gone a little differently. I do not think the Federal Reserve, who has an enormous amount of
power, should be should be able to act as they seem fit without running major decisions past
someone. If they had boundaries then they could act within those. The reason I feel this is
needed is because of recessions. We seem to always have them, why? Why can’t we learn
from our past and find a solution?
Reference:
Carr, Fred M., and Jane A. Beese. “The federal reserve interest rate manipulations from
2000-2007 and the housing mortgage crisis of 2008.” Journal of Economics and
Economic Education Research 9.2 (2008): 107+. Business Insights: Global. Web. 20
Jan. 2020. Retrieved from
http://bi.gale.com.ezproxy.snhu.edu/global/article/GALE%7CA202701459?u=n
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