Is the Federal Reserve at its Breaking Point?

Written by: Jess Wolter

Monetary policy are the actions that the Federal Reserve System takes to influence the level of real GDP and the rate of inflation in the economy. For the past couple of years the economy has been struggling to get out of a recession and the Federal Reserve has taken many actions to try and stimulate the economy. Recently though a former Federal Reserve chairman, Paul Volcker, is questioning if the Feds are doing too much to help out.

            While the Feds are doing anything in their power to help with stimulation they also need to abide by what their many goals are. They cannot be straying away from those purposes otherwise their establishment is nearly pointless. On the other hand some people believe that the Federal Reserves are not doing enough and should be doing more for this country. Volcker states, The Fed is being asked to "accommodate misguided fiscal policies" and "deal with structural imbalances". On top of doing their job of keeping low inflation and strengthening the economy. The Feds are being asked to take over the jobs that the government should been doing because they are in charge of fiscal policy. At this point in time the government is still arguing over the fiscal policy and that is adding more economic turmoil to the mix. It is the Federal Reserves best interest to stick their main tasks and work on keeping prices stable.

            The Federal Reserve is doing anything to try and push economic growth but there comes a point when too much pushing can become harmful. In the video on CNN News Volcker talks about his views on what the Federal Reserve should do. In the video he says,” Low interest rates have pushed up all assets,” and those are the movements that are needed to get this economies blood pumping. The negative side of this though is that “The Federal Reserve has kept short-term interest rates near zero since December 2008, in an effort to stimulate the U.S. economy” (CNN News). The bad part about these low interest rates is that when the economy becomes stable and the rates need to rise citizens will become frantic and upset with the raising rates. When they become upset the consumers will not want to invest as much because of the higher rates and that will not stimulate the economy.

            The Federal Reserve struggles to find the equilibrium of how much they should be doing for the economy. John Volcker believes that the Feds are going to fall short of the expectations that are ahead of them. His thought process is that the Fed will be focusing on their tasks and will not be able to tackle the jobs that are not a part of their duties. With all the Federal Reserve does, the future may be bleak because of the transition back to more normal interest rates. Consumers may panic and cut back investments and that is the opposite of economic growth. Without the Federal Reserve’s help though, the economy could still be in the recession and not in a growing process. What do you think the Federal Reserve should do?

Kurtz, Annalyn. "Volcker: Fed Will 'fall short'" CNNMoney. Cable News Network, 29 May 2013. Web. 31 May 2013.