Hands Off the Fed

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Discussion about more political oversight or political control of the U.S. Federal Reserve (Fed) occasionally heats up. We are seeing more of this type of discourse today as the election approaches. In our view, limited Fed independence could prove disastrous. While we can be critical of Fed policies, history shows that more political influence can make the situation worse, not better.

What is the U.S. Federal Reserve?

The U.S. Federal Reserve, often called “the Fed,” is the central bank of the United States. It was created in 1913 to provide a safer, more flexible, and more stable financial system. The Fed has several important jobs:

  • Conducting monetary policy;
  • Supervising and regulating banks;
  • Maintaining the stability of the financial system; and
  • Providing certain financial services to the government and public.

How does the Fed work?

The Fed’s main tool for influencing the economy is monetary policy. This involves managing the money supply and interest rates to promote maximum employment, stable prices, and moderate long-term interest rates.

The Federal Open Market Committee (FOMC) is responsible for setting monetary policy. It consists of:

  • The seven members of the Board of Governors;
  • The president of the Federal Reserve Bank of New York; and
  • Four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis.