What is the Federal Reserve (Fed) all about? Which Federal Reserve District Bank

Question

What is the Federal Reserve (Fed) all about? Which Federal Reserve District Bank is closest to you? Who is the current Chairman of the Fed? Should the Fed remain independent from political authority or should the President and Congress have a say in their operations? Why? Why not? What is FOMC? What is the current Federal Funds Rate? How does the Fed implement monetary policy to manage the economy? At the last meeting of the FOMC, what was done to the federal funds rate--increased, decreased, or no change from previous meeting? Given the current state of the U.S. economy, should the Fed be using expansionary monetary policy or contractionary monetary policy? Why? Why Not?

Explanation / Answer

The Federal Reserve was created by the U.S. Congress in 1913. Before that, the U.S. lacked any formal organization for studying and implementing monetary policy. Consequently markets were often unstable and the public had very little faith in the banking system. The Fed is an independent entity, but is subject to oversight from Congress. Basically, this means that decisions do not have to be ratified by the President or anyone else in the government, but Congress periodically reviews the Fed's activities. The Fed is headed by a government agency in Washington known as the Board of Governors of the Federal Reserve. The Board of Governors consists of seven presidential appointees, each of whom serves 14 year terms. All members must be confirmed by the Senate and can be reappointed. The board is led by a chairman and a vice chairman, each appointed by the President and approved by the Senate for four-year terms. The current chair is Ben Bernanke, who took over for Alan Greenspan on February 1, 2006. Greenspan had been chairman since 1987. To determine the extent to which the Fed should be free from, or under the control of the government, an in-depth analysis of a highly dependent and an equally independent Fed is required. We shall see how an independent Fed checks inflation, encourages employment and stimulates growth and how a puppet-like Fed sends the ruling government on a federal spending spree. We will also see how an all-powerful Fed can in fact misuse its powers and freedom, and bring about a financial turmoil. It is only after weighing both sides of the argument that we can determine the degree of freedom that the Fed should enjoy. Conclusion: The Fed, though in its present state is highly autonomous, needs a stricter eligibility criteria, shorter terms for its members, more freedom from the government with respect to biannual reports, and much more power in front of the government in financial matters. That is, the Fed should have the power to recommend, if not require, the government to stay within certain boundaries when it makes decisions related to earning and spending.

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