Thursday, September 17, 2009

the limitations of monetary policy

In additions to conflicts among the nation‘s economic goals, the Federal Reserve finds that it cannot completely control financial or the money supply. Changes in the economy itself feed back upon the money supply. It becomes exceedingly difficult, especially on a weekly or monthly basis, to sort out the effects of monetary policy from the impact of broad economic forces.
Moreover, until recently the Fed has received little cooperation from Congress in the pursuit of effective taxing and spending programs. Most economists agree that fiscal policy- the taxing and spending activities of the federal government-can have a potent impact upon economic conditions. Unfortunately, changes in tax rates and federal spending programs require the cooperation of the both the executive and legislative branches of the government. This kind of cooperation between Congress and the president has only just begun to surface. with the exception of recent tax and spending cuts by the Reagan administration, the Federal Reserve System as been forced to carry the burden of anti-inflation policy almost totally alone. Under these circumstances, we should not be too surprised that the Fed‘s past tract record leaves much to be desired.

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