WEEK 7 DISCUSSION.

WEEK 7 DISCUSSION
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The dual mandate of the Federal Reserve highlights that it should aim to ensure that the inflation
remains within control, unemployment continue to remain low and long term interest rates are
mandated. The importance of Federal Reserve as an institution can be highlighted from the role
that it has played in the US economy (Steelman, 2011). The increasing interest rates post 2005
leading to the global financial crisis was one of the contributory reasons to the crisis. However, it
has played an even more significant role in the recovery of the economy post the crisis when the
interest rates were dropped to near zero. Also, in order to provide confidence and stability in the
financial markets, the Federal Reserve also initiated buying bonds from the market thereby
providing liquidity in the market. It is difficult to imagine that US economy would have
recovered in the resilient manner that it has without active role played by the Federal Reserve. In
the light of this, it can be concluded that Federal Reserve without doubt is a necessary
component of US economy which provides it resilience and stability.
With regards to functioning of Federal Reserve, I believe that compared to other central banks, it
has been less conservative. Further, there have been loopholes in the regulation of the banking
sector especially before the 2008 crisis. The fact that the Federal Reserve could not see a crisis
of the magnitude of the global financial crisis coming raises doubts on effectiveness of
functioning (Appelbaum, 2014). However, I believe that since 2008, as an institution, Federal
Reserve has done a good job. Going forward, it would be imperative to preserve the
independence of Federal Reserve which in recent times seems to be under threat.
References
Appelbaum, B. (2014) Fed Misread Crisis in 2008, Records Show, Retreived from
https://www.nytimes.com/2014/02/22/business/federal-reserve-2008-transcripts.html
Steelman, A. (2011) The Federal Reserve's "Dual Mandate": The Evolution of an Idea,
Retrieved from
https://www.richmondfed.org/publications/research/economic_brief/2011/eb_11-12