What Are The Arguments Supporting The Federal Reserve's Independence

With its power to stabilize the financial industry and consolidate monetary policy under a single body, the Federal Reserve is a vital component of the US economy. The independence of the Federal Reserve, which spares it from the influence of political demands, is one of the institution's advantages. This independence aids in keeping the Fed from adopting measures that could be advantageous for reelection in the short run but would cause long-term economic harm down the road. In addition, the Federal Reserve's function as a lender of last resort to commercial banks guarantees that banks will always have access to money when they need it and contributes to the stability of the banking system. The Fed has been successful in lending money to banks

Since an independent Fed may concentrate on long-term economic goals rather than short-term political advantages, the argument that an independent Fed is required to protect the system from short-term political pressures makes sense. The information presented demonstrates how political pressure can result in inflationary measures that could eventually hurt the economy. Furthermore, the Fed's independence enables it to base decisions on economic information and analysis rather than political concerns, which ultimately benefits the economy and financial system's overall stability. According to the evidence offered, specific situations that support the argument for the Federal Reserve's independence include the primary justification for its independence: that it shields the system from transient political influences. This is critical because, in the absence of autonomy, politicians driven by election concerns may pressure the Fed to adopt measures that have unfavorable long-term effects, such as rising inflation and a sustained inability to contain unemployment. Politicians seeking reelection may support inflationary policies, according to proponents of central bank independence. While these policies may have short-term positive effects, such as increasing salaries and employment, they can negatively affect the economy by decreasing the purchase value of