Question

Explain the role of the Federal Reserve (the Fed)? How much discretion should the Fed have? Should the Fed try to fine-tune the economy or simply keep money supply growing at a steady pace? Why?

Answer 1

Federal reserve is an apex financial authority in USA. It has been mandated to achieve twin objectives: full employment and price stability.

Federal reserve does not work under the pressure of any political entity . It is managed through the expert body, thus it must have leeway in using its discretion.

During the great recession of 2007-08, the federal reserve used it's discretionary power in most reasonable manner and it led to the speedy recovery of economy .

Presently we are facing the massive pandemic and we should trust the federal reserve capabilities. Now fed has already taken the action to avert the long lasting recession . Fed has announced the expansionary monetary policy to correct the slowdown .

Simply increasing money supply by following the certain rule would not help to address to crisis unfolded by the pandemic . There is huge responsibility upon the shoulder of federal reserve.