Fairbanks, Robert P., 1934-1971||Gherity, James A.
M.A. (Master of Arts)
Department of Economics
United States. Federal Reserve Board
The federal Reserve System, through its monetary policies, has a significant influence over the direction of economic events in America. The Employment Act of 1946 directed the government toward the goals of economic growth and full employment. At times a restrictive monetary policy can impair these goals while trying to maintain monetary stability. Thus a priority of goals is established. Unfortunately, this priority is often left to political forces rather than economic factors. That is, the federal Reserve System and the Administration have no formal power over each other, and if they place economic goals in a different order, conflict between them often may evolve. Since the Fed’s inception in the early part of this century there have been many controversies over its policies. After the depression, the controversy was not only over its policies but its authority to exercise them. Essentially, the issue is divided between extremes. The proponents arguing that an independent monetary authority is needed in order to spare monetary policies from the influence of politics. The opponents argue that an independent fed hampers the coordination that is essential for economic growth. Both sides have valid positions, however. It is naive to think than politics can be separated from economics. In this light, it was necessary to establish a criteria for what is meant by independence. It was found that independence had different meanings depending on the institutional framework at the time. In historical encroach win then necessary to examine the Fed's actions luring different periods of history. The study yielded some significant findings. In essence it showed that Fed acted independently and boldly during times of peace and prosperity; however, during tines of economic or political crisis the Fed was submissive and timid. the paper then proceeded to point out the many ways that the Fed was influenced by Presidential pressures, thus seriously questioning the pure independence theory that had been established by there students of the Federal Reserve System. In conclusion, the Fed is not purely independent from the Administration, but when it has acted in opposition the Fed has had to bear a minimum of severe reprimand fey Congress or the financial Community for either acting too late, too little, or too much. Thus the dilemma remains: should we have an independent, or shall we say a quasi-independent Fed? The answer is a value judgment left to the reader, however, if one subscribes to the main positions herein, at the minimum, one must agree that at least a significant change is needed within the existing framework used to determine economic policy in this country!
Hollendoner, Michael F., "Independence of the Federal Reserve System" (1968). Graduate Research Theses & Dissertations. 3540.
Northern Illinois University
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