People who complain about extreme fed policy should look to congress. The inability of congress to address core economic and financial issues forces the feds hand.
Very accurate. The dysfunction of congress led to a much slower economic recovery after the GFC due to sequestration and partisan debt ceiling games. Then went far the other way with huge tax cuts, huge spending, followed by even more spending by the current admin, and claim surprise at the resulting inflation. If we do have a recession coming, we are in a very bad position to cushion it at the moment due to political partisanship.
Low interest rates are supposed to make it easier to build new housing but instead zoning keeps getting more restrictive. People complain about Chinese investors buying up houses when they should be glad that they can use this money to build homes.
Local residents might think property values going up benefits the city but in practice wealthier individuals will be able to afford more houses and all of those increased property values exit the community when "mortals" move in and buy the house. The 700k paid on a house does not go to the community, it goes to some absentee owner/landlord in San Francisco or New York or some other major city.
They're meant to use monetary policy to maintain price stability and keep the unemployment rate low. Lots of issues come up where monetary policy would need to react. There are many places where fiscal policy might be better (it can be more finely targeted) and we generally don't see it materialize. So we're left with central bank technocrats using monetary policy.
The alternative to monetary policy isn’t necessarily fiscal policy. The current situation seems to be a combination of fiscal (demand side) problems [0] and supply problems. Congress can, slowly, address supply problems. The Fed can only usefully affect the demand side.
As examples that have come up, various shipping laws make shipping expensive. Energy should be cheap to improve economic output, but energy prices are quite high, especially in places like CA. Medical services, drugs, and drug development are wildly expensive and inefficient, and government policies help keep them that way. Various environmental laws, while well intentioned, raise costs of all kinds of things while providing little or even negative environmental benefit [1].
[0] Hello, Covid stimulus policies.
[1] As an example in California, water is quite useful, and desalinating water is not fundamentally particularly expensive. But so many environmental groups have veto power over desalination that the cost of large scale desalination might as well be infinite. Never mind that CA has plenty of coastline, plenty of solar resources near the coast, and plenty of valuable goods that could be produced if cheap solar power and reasonably priced water were actually available. And never mind that actual peoples’ actual living expenses (hello, inflation!) would be reduced if their utility bills, their restaurants’ utility bills, etc weren’t so high.
They have sought to prevent large scale economic crisis, which would dramatically impact unemployment. And they have commented while doing so that this is not the ideal way to manage things.
Independent and neutral are not the same thing. The Fed works in concert with the government (Treasury, policymakers) to balance monetary policy with fiscal policy.
Congress, in part because of the fed, doesn’t have the ability to regulate it. This is why Andrew Jackson originally dismantled the second bank of the United States (the irony of him being on the $20 federal reserve note is painful).
The way the fed really works is that those closest to the supply of money get a higher valued dollar. During the pandemic the fed was straight up letting certain entities have the funds first (black rock, for instance). Then they were buying junk bonds and deciding winners and losers
The Fed is one of the most misunderstood institutions. Basically, everything you have said is completely wrong, which makes difficult to write a reply, because where to start?
In short, the original design of the Fed was correct, where each branch was independent and could set their own interest rate, and they purchased commercial paper to stimulate the economy. This changed during WWII, where the government mandated that they had to purchase government bonds to support the war.
Congress is the main problem, where they spend money recklessly with no intention of paying anything back.
The Fed is in a position where if they don't raise interest rates, they will be blamed for the bad economy.
The Fed is a convenient scapegoat, used by people who assume that Youtube videos are correct.
> Congress is the main problem, where they spend money recklessly with no intention of paying anything back
This is surely the main problem. But if we simply had a market equilibrium interest rate, they could not spend like they do. Hence, they are junkies and the Fed is their dealer.
I may not know everything about how they operate, but I have seen how qualified their leadership is. The fed is usually run by a bunch of phd's so I have come to trust it a bit more than other government institutions.
1. The FED isn’t a government institution. That’s part of the problem.
2. In my opinion, a PhD doesn’t make your more qualified inherently. How often do candidates fail their qualifying exam or defense and never return? (Hint very few).
Take a step back and ask what the alternatives are? Prior to the 3rd central bank of the US the government was effectively fine. But it couldn’t print money, it had to collect it via taxes. This limited taxes and government spending.
Now… it’s basically a constant tax called inflation; much of which we export.
