Quick Thoughts on the Federal Reserve Issue
The Federal Reserve was initiated to provide stability to the monetary system in the country and maximize employment. So far, the role of the Federal Reserve has been criticized for having a target unemployment rate above 0%. According to the critics, this target implies that there would be unemployed people due to the policy set by the Central Banks, and the Federal Reserve claims that in a stable economy, employment rate cannot reach 100% because there will be people who are transition or learning new skills, and an unemployment rate above 0% justifies this concept. While the Federal Reserve is already trying to clear its roles and responsibilities, the legislature branch demands more action from the Federal Reserve regarding social issues. While I do support the government role in supporting social issues, the role of the Federal Reserve was meant to be objective and stay clear from any political issue. Social issues most of the time end up being political issues. There is a reason that the responsibilities of the Federal Reserve are highly independent, as political influence might become an obstacle for the Federal Reserve to maintain economic stability. If you look at countries that had their economies and currencies destabilized, many of them had a weaker Central Bank that could be controlled by the government, which allowed political thoughts cloud the judgement of monetary policy makers.
The Federal Reserve should remain an independent body focussed on the economic problems and solving them objectively, as political economics doesn’t automatically guarantee the best outcome for anyone. If you ever wondered why Senators have a 6-year term, while House members have a 2-year term, it is because the rationale was that a 6-year term would prevent Senators from acting irrational due to a quick election coming near. Someone voting on a particular bill might not worry about what voters will think in 6 years, compared to someone facing re-election every second years. Also, only one-third of Senators face re-election in 2 years, to provide stability in the political institution. Now, this is just theory, because practically there still tends to be human biases. The Federal Reserve faces similar problems that should focus on long-term stability, instead of short-term political thought. The monetary system in the US is far more stable than many other countries for a reason. The legislature branch has vast powers to decide on social issues, and it is their job to do so. There is a reason that we distinguish fiscal policy from monetary policy.