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Monetary Policy and the Federal Reserve

The Federal Reserve System (FRS) is one of the most powerful financial institutions, having a huge number of tools to effectively manage the economy. Ben Bernanke demonstrated similar actions that made it possible to stabilize the market after the Great Recession of 2008. The purpose of this essay is to explore the structure and instruments of the FRS, or the Fed, and to analyze Bernanke’s actions.

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First of all, the Fed is the central bank of the United States, concentrating the powers of the monetary authority. FRS consists of 12 regional banks, each responsible for a specific geographic region (Hayes 2021). In addition, the Federal Open Market Committee (FOMC) and the Federal Reserve Board of Governors are also key members of the Fed. Although the FRS is considered independent, the bank is still subject to Congressional oversight and operates within the overall fiscal policy (Hayes 2021). Consequently, while the FRS oversees monetary policy, the political forces of Congress can influence its work.

The Fed has a specific list of tools that can be used to accomplish the tasks assigned. Such objectives are shaped, for example, by the principles of a “dual mandate” of maximizing employment, setting stable prices, and long-term interest rates (Hayes 2021). This list of goals expresses the necessary conditions following which monetary policy changes and percentage ratios are established. For example, the Fed recently set an inflation target of two percent, which should be as close as possible to the targets above. The FRS has other tools such as quantitative easing to reduce interest rates and increase investment (Hayes 2021). Thus, the main instruments are ways of adjusting interest rates and buying and selling longer-term securities. Bernanke used many of these methods to rebuild the economy. His role was to return to the Fed’s original mission through a series of innovations (Lowenstein 2012). However, these actions led to conservatives’ suspicions of concealing the true reasons for the implemented changes. On the other hand, the leftist activists were not satisfied because, in their opinion, the reforms should have continued.

Thus, despite the ability to adjust monetary policy, the FRS activity is constrained by general politics. A perfect example of this is the politician Ben Bernanke, who, despite positive action to remedy the situation, has earned a negative reputation on all sides. However, with the right course and the skillful use of tools, FRS can successfully regulate the economy.

References

Hayes, Adam. 2021. “What Is the Federal Reserve System (FRS)?” Investopedia.

Lowenstein, Roger. 2012. “The Villain.” The Atlantic.

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StudyCorgi. 2022. "Monetary Policy and the Federal Reserve." December 15, 2022. https://studycorgi.com/monetary-policy-and-the-federal-reserve/.

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StudyCorgi. (2022) 'Monetary Policy and the Federal Reserve'. 15 December.

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