Business Economics Economics Discussions The Federal Reserve
The FED's FOMC is comprised of 12 members - the 7 Board of Governors, the NY Regional FED president and 4 of the other 11 regional FED presidents (on a rotating basis). What is so special about the NY Regional FED that it commands a permanent seat on the FOMC?
The FOMC is responsible for open market operations. The NY regional FED is located in the heart of the United States financial center. The primary purpose of the NY Federal Bank is to conduct most of the Fed’s open market transactions. So it is fit for the president of New York Fed to have a permanent seat in the FOMC.
How does the structure of the FED help to shield it from political pressure? Name at least three significant ways.
Congress made the Fed an independent agency of government through the Federal Reserves Act of 1913. This was done so the Fed could effectively control money supply and maintain price stability. They set the monetary policy. The Feds three parts: the Board of Governors, the regional Reserve banks and the Federal Open Market Committee, operates independently of the federal government to carry out the Federal Reserve's core responsibilities. It is self-financed and therefore is not subject to the congressional budgetary process. The decisions that the Fed makes do not have to be ratified by the President or anyone else in the executive or legislative branch of government. The Fed can either increase or decrease the interest rate with out the pressures of politicians, US government, or lobbying groups.
Why is it so important that monetary policy be performed with as little political pressure as possible?
So the monetary policy would not be influenced by strong lobbyist and Politicians to sway any decision made by the Fed to their benefit. It is important that the Fed acts on its own terms so the Fed could effectively control money supply and maintain price stability. If politics get in the way, control of money supply and maintaining price stability will be jeopardized
What is the connection between the definitions of money and the FDIC?
The government has never declared checks to be of legal tender (money), but is used often as legal tender. The FDIC insures individual deposits up to $100K at commercial banks and thrifts. Most of these deposits are done by checks. Checkable deposits are considered M1 in the definition of money.
