Federal Reserve

Jamie Ward- Honorbound

The Federal Reserve, known as the “central bank of the united States” was established when Woodrow Wilson signed the Federal Reserve Act on December 23, 1913. Wilson found it necessary because “the U.S. economy was plagued by frequent episodes of panic, bank failures, and credit scarcity.”[1] This served as a purpose to protect the American economy and currency. Before Woodrow Wilson, many presidents tried to establish a central bank in the U.S. The tension that it caused can be linked to the “blood feud” in American politics still seen today, started by Alexander Hamilton and Thomas Jefferson. The issue of the central banking system stems from the argument of states’ rights and the overreach of the federal government. The First Bank established by Hamilton was later resurrected by James Madison until Andrew Jackson destroyed the system that was “an engine of corruption”.

Though it is the central bank of the United States, the Federal Reserve (known as the Fed) does not give funds to other banks, they simply trade in their new money for government bonds that the bank currently owns. In the novel, “Naked Economics” written by Charles Wheelan, Chapter 10 goes into descriptive detail over the Federal Reserve, it is explained just how important the Federal Reserve is to the economy. Finding that the Federal Reserve is in charge of most things money, “the Federal Reserve has tools with more direct impact on the global economy that any other institution in the world, public or private.”[2] This meaning that we rely mostly on the Federal Reserve to keep us afloat and not let the economy go into another recession or cause hyperinflation or deflation. Inflation distorts taxes and the economy and deflation can be economically devastating. With knowing the effects that one thing can have on the economy, “the Fed must facilitate a rate of economic growth that is neither too fast nor too slow.”[3] Though those who run the Federal Reserve seem to have it all together, finding the equilibrium and keeping the economy afloat, there are more issues in today’s economy with the Federal Reserve due to economic stress.

In 2013, The Federal Open Market Committee met to discuss the economic activity, “the Committee seeks to foster maximum employment and price stability… economic growth will pick up from its recent pace and the unemployment rate will gradually decline.”[4] As the years went on, the economy could not accelerate in their wishes to decline the rate of unemployment. In the month of April in 2016, economists began to take note that the central bank became too focused on keeping the stock markets happy, small inclines in interest rates became a big deal. With the Feds believing that the economy is in such good shape that they “step on the brakes” to ensure healthy growth, “businesses are on edge. Companies and investors fear the end of the “easy money”[5] days. With the Federal Reserve spending more time on the stock market, they have almost forgotten the importance of interest rates and the effects it has on the economy. Economists fear that “low long-term interest rates are a signal that the economy’s long-run growth prospects are dim.”[6] With all of these issues, it is clear to see that the Federal Reserve is beginning to suffer more in Today’s economy than in the past.

[1] “Education | What Is The Fed: History.” What Is the Fed? 2016/ Accessed October 20, 2016.

http://www.frbsf.org/education/teacher-resources/what-is-the-fed/history/.

[2] Wheelan, Charles J, Naked Economics: Undressing the Dismal Science. New York: Norton, 2002.

[3] Wheelan, Charles J, Naked Economics: Undressing the Dismal Science. New York: Norton, 2002.

[4]“FRB: Press Release—Federal Reserve Issues FOMC Statement…” Septempber 18, 2013. Accessed October 20, 2016.

http://www.federalreserve.gov/newsevents/press/monetary/20130918a.htm.

[5] Long, Heather. “Has the Federal Reserve Messed Up?” April 1, 2016. Accessed 2016.

http://money.cnn.com/2016/04/01/news/economy/federal-reserve-2016/index.html

[6] Gillespie, Patrick. “Federal Reserve Vice Chair ‘Very Concerned’ about U.S …” Very Concerned about US Economy. 2016. Accessed October 20, 2016. http://money.cnn.com/2016/10/17/news/economy/federal-reserve-fischer-concerned/index.html.

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