In his New York Times column of May 27, 2005, economist Paul Krugman stated: “After all,...

In his New York Times column of May 27, 2005, economist Paul Krugman stated: “After all, the Fed’s ability to manage the economy mainly comes from the ability to create booms and busts in the housing market.” Is it an accurate characterization of the Federal Reserve’s influence over the real economy?

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Answer #1

No, the Fed's ability to manage the macro of the economy is much more and housing market is just a part of it. At the time when Krugman said this a large amount of money was spent in the housing market, But overall the fed can influence the amount the banks lend to any sector, the value of the local currency as compared to currecies of the world and with it trade in the market, the money supply and regulation of the bank.

Fed is equally influencial as the President in deciding the macros of the economy.

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