Question

answer in 200 words.

The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress. Examples of the Fed autonomy are the long term served by each member of the board. Should the autonomy of the Federal Reserve System be preserved? Discuss the arguments for and against. and how the autonomy of the federal reserve system be preserved? and what is the connection? For example- you must add the connection why the independence of the Fed would ensure that inflation can be done with tightening. Explain what is tightening and why perhaps that is an unpopular move?

The argument against it that fiscal policy might be different than monetary policy seems interesting - but how does it lead to recession?

Answer 1

Federal Reserve like most central banks in the world are autonomous institutions and their autonomy is preserved to ensure the prudence of monetary policy.

The autonomy should be preserved to ensure that:-
1) Inflation control can be done by tightening the policy rate and the bank does not lower the policy rate too much to subsidize an overspending government.
2) The value of the currency can be preserved.
3) The monetary framework of the country remains robust.
4) Also, the regulation of the banks by the Federal Reserve remain unbiased so that there is no conflict of interests.

Only one potential disadvantage exists of an autonomous Federal Reserve and that is there is a possibility of a divergent fiscal and monetary policy due to disagreements between the government and the Federal Reserve and this might lead to delay in recovery of the economy during the recession.