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Federal Reserve Vs Central Bank Essay

831 Words4 Pages

Why is the simultaneous targeting of the money supply and interest rates sometimes impossible to achieve?

In the long run, they could coexist harmoniously and also do great good to the economy. Nevertheless, in the very long run, they can occasionally cancel out each other's outcomes.
The 2 problems confronted by the Fed are making sure inflation doesn't increase and making sure output and employment to grow. In order to do these two, the central bank must make a decision. Either they raise interest rates, therefore, inflation does not go up, but this reduces money supply or they reduce interest rates to help with output and employment which then gives us a healthy money source. It might be tough to increase interest rates and money supply in precisely the exact same time. However, in the long term, they could co-exist and balance out.
Ambiguity is made through central bank activities if the Federal Reserve were to alter the total …show more content…

Based on Wright and Quadrini (2009), normally central banks do not do much and let the market forces control the ups and downs in exchange rates but occasionally they should butt in when they see that their money is either getting too weak or too powerful. They can do it by a number of ways. Some of them are matters simply as exchanging the financial tender in their reservations, denominating resources, buying and selling gold, and etc.
The end goal of the Federal Reserve would be to ensure the predictable and smooth functioning of the U.S. market and financial markets. Targeting either very low inflation or high employment and strong growth is merely a method to this end, "Notice that if the central bank leaves the supply of cash repaired, fluctuations in the demand for money will produce the interest jiggle up and down. It can simply keep interest rates fixed by changing the money

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