We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Should the Fed Reserve Be Subjugated to Political Influence Essay Sample

The whole doc is available only for registered users OPEN DOC

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Should the Fed Reserve Be Subjugated to Political Influence Essay Sample

The notion for congress to subject the federal reserve to greater political accountability implies a big risk measure the fed must consider. According to the market view of trump, “bond markets are pricing in faster growth and inflation since the election, with 10-year treasury yields rising much more than shorted-dated yields”. With the recently president-elect, Trumpflation sets short term goals to boost inflation and economic growth, while having no long-term impact on the real economy.

With the cyclical boom reflected across the equity market at a stock level prestige, we see that cyclical companies like car manufactures and airlines easily averaged over the SP500, while the defensive companies who are better suited to counter recession lags. Although critics argued that the long-term treasury securities are a flawed measure of hope, trumpflation’s attempt to increase the 10-year treasury rate implies a decrease in the security’s price.

As a result, because this takes time value of money into account, the coupon value will be worth less by the maturity date. If the fed is further subjected to political control, increasing inflation can hurt the coupon holders by decreasing the real interest rate at which they receive on their coupon. One of the biggest reason to free the fed from political pressure is its monetary policy. To better achieve better inflation outcomes without compromising economic growth long term, central banks must be able to conduct monetary policy operations away from political influence.

Since the goal of the monetary policy is subjected to time lag, it should be ideal to say that the policymakers need to take a longer-term perspective into account; in retrospect, political pressure can subject the “central bank to overstimulate the economy to achieve short term outputs and employment gains that exceed the country’s underlying potential”. For example, during Janet Yellen’s testify on oversight operations back in 2016, she mentions that with more people coming back to the labor force (180,000 jobs per month) and with inflation under control just below 2%, there is no upward pressure on inflation.

However, if short term goal was taken into consideration and the monetary policy being an accommodative, it can subject the economy to overheat. As a result, this can lead to a faster increase of interest rate that can jeopardize the ideal economic situation the US needs to be in. In addition to its monetary policy, the importance of the Fed’s independence allows it to monitor the effect of its flexibility to counter congressional mandate. The biggest fear of potential political oversight of the Fed’s operations is the abuse of government power.

Allowing political control gives the Congress authority to force the Federal reserve to buy its debt by printing more money, which in turn causes hyperinflation for the people and high volatility for the market. The power of independence of the central bank is a big factor in determining the nation’s economic power. According to Janet Yellen testimony on the independence of the central bank, she stated that independent central banks show better economical outcomes, and these banks has proved to further display a more positive macroeconomic performance.

For example, the biggest consumer inflated country is proven currently to be Venezuela, with 700% inflation rate. Under a socialist government, its central banks’ independence is controlled by its government, and having numerous sanctions on its oil reserve on top of massive amount of debt threw the country into an economic mess. As a result, the president had to devalue the bolivars by more than 60% in hoping to bridge the gap between the official rate and its black-market rate.

Domestically, a good example of the Fed and Government coagulation was seen during the Greta Depression. Between 1928-1929, with the” support” of Government authority, the fed attempted to raise interest rate to limit speculation in the securities market. However, this action slowed the economy and triggered a nation’s recession. As proven multiple times in the past domestically and internationally, one can only hope that the Federal reserve can be left independent of congressional mandate.

We can write a custom essay

According to Your Specific Requirements

Order an essay

You May Also Find These Documents Helpful

Peculiarities of various assignment types

The educational process is diverse and full of interesting writing tasks which help students develop their academic abilities. Different assignments types are created by professionals in order to enhance students’ level of analytical, critical and writing skills and to vary the learning process. As a student, you will encounter numerous tasks of diverse complexities throughout your student life. Sometimes, maybe, too complicated! They have different peculiarities, structural...

Making decisions in health and social care

Critically analyses the concepts, features, and importance of costs and accounting in making decisions in health and social care Cost accounting is a method used in accounting to capture a company’s or organisation’s production costs. It assesses the input costs of every step in production, fixed costs like depreciation of capital equipment. Cost accounting measures and records costs individually then compare the input results via...

Сhildren development

Physical development 7-12 years By the age of 7 a child enjoys things such as bike riding and rollerblading they are now able to tie and untie shoelaces without adult help, they are now starting to understand what rules are and are able to follow simple rules. At 8-12 years a child improves the physical skills that they have already developed and start to see...

Forex international trading market

Introduction Forex exchange is on the rise in Namibia; resulting in more people wanting to learn how to trade to try to increase their income so that they can enhance their standard of living. Forex Foreign exchange identifies the process of converting domestic currency into international banknotes at particular exchange rates (Bofah, 2017, para.1). As the number of foreigners in Namibia is increasing, more Namibians...

Aristotelian idea of God

This image produced in 1544 shows emerging's of the Judeo-Christians and Aristotelian's traditions. Aristotle was very interested in the idea of motion and said “The world is in a constant state of motion and change”. An example of how the world is changing is the growth of trees and plants. Aristotle believed in a prime mover, which is the being which creates change in the...

Get Access To The Full Essay
Materials Daily
100,000+ Subjects
2000+ Topics
Free Plagiarism
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access

Become a member

Your Answer Is Very Helpful For Us
Thank You A Lot!


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?

Couldn't Find What You Looking For?

Get access to our huge knowledge base which is continuously updated

Next Update Will Be About:
14 : 59 : 59
Become a Member