Federal Reserve & U.S. Economy

Federal Reserve & U.S. Economy

The Power of Alan Greenspan and the Federal Reserve Bank

The Federal Reserve System (hereafter the ‘Fed’) is a centralized banking system used in the United States. The nations banks and the U.S. government constitute its membership. The Fed has many functions, from issuing national currency to controlling monetary policy. When it comes to the most significant function of the Fed, regulating the control of the nation’s money supply, the agency has complete autonomy and an overwhelming impact on the economy. One of the ways in which the Fed most impacts the U.S. economy is its control over short-term interest rates, in other words the amount of interest is costs banks to borrow money for a short period of time from other banks with surplus reserves. The most powerful member of the Fed is its chairman, Alan Greenspan. Because of what he considers extreme over-valuation of stocks in the stock market, Greenspan has recently affected the economy by raising interests rates repeatedly in the past year “Since his famous warning against irrational exuberance back in 1996, to cool the economy down he has raised interest rates five times since June 1999.”

There are many who argue that the Fed has too much autonomy and power when it comes to the American economy. Just the perceived threat of Alan Greenspan raising interest rates can send the government, Wall Street, and corporate America into a panic. Because of the difficulty of measuring the money supply, the constant changes that affect the financial market, and the continuous changes people make to their stocks and bonds portfolios, it is imperative, others argue, to have someone with a firm grasp on the situation. That job has been the Fed’s for nearly nine decades in the U.S. Others argue that the Fed needs its present level of autonomy and control over the economy, or it would become bogged down in bi-partisan inaction and ineffectiveness much like the U.S. Cong…

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