FIN 351 Project - FIN 351 Project 1 Running head FIN 351...

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FIN 351 Project 1 Running head: FIN 351 Project FIN 351 Project Aliceya Perkins FIN 351
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FIN 351 Project 2 The Federal Reserve monetary strategy of the last five years has resulted in the lowering of the U.S. Dollar exchange rate. The Federal Reserve followed this strategy because it has an express mandate in the control of the supply of money in the marketplace. The U.S. Congress established two key objectives for monetary policy--maximum employment and stable prices--in the Federal Reserve Act. These objectives are sometimes referred to as the Federal Reserve's dual mandate. (Federal Reserve Board 1988). The dual mandate is the long-run goal for monetary policy, and the Congress also established the Federal Reserve as an independent agency to help ensure that this monetary policy goal can be achieved. The independence of the Federal Reserve in conducting monetary policy is critical to guaranteeing that monetary policy decisions are free from political influence and focused exclusively on achieving the Federal Reserve's dual mandate. For example, a problem experienced in many countries without an independent central bank is that elected officials have put pressure on monetary policymakers to follow policies that boost the economy in the short run even if doing so would result in high levels of inflation later on. The Federal Reserve's dual mandate and the provisions for the independence of the Federal Reserve are two key factors that help guard against such outcomes in the United States. The strategy that the Federal Reserve has employed, in terms of monetary policy over the past five years, has largely been unsuccessful. One key reason for this failure is that the Federal Reserve is less independent of the U.S. government than it appears to be; thereby preventing it from acting solely in the best interest of the country. More specifically, what the U.S. Congress creates, the U.S. Congress can modify or destroy. Congress has from time to time established guidelines or objectives for the Fed (e.g. Humphrey-Hawkins, 1978). The Fed remains independent because most politicians want it that way. They mostly agree that monetary policy is not a partisan issue. An independent Fed can also absorb blame if the economy falters, and take necessary but unpopular steps to
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FIN 351 Project 3 combat various economic ills. If Congress should change its mind, the Fed’s independence could vanish at the stroke of a pen. In addition to the false independence of the Federal Reserve, its powers as they were originally intended has been diluted due to expansion of the money supply since its inception in 1913. The Fed has centralized as the U.S. has evolved from a confederation of regional economies to a truly national economy. The twelve Federal Reserve Banks, once largely autonomous in their respective regional districts, remain operationally important but have lost their authority to set monetary policy. They are a minority, currently comprising five votes out of twelve on the Federal Open Market Committee, which
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FIN 351 Project - FIN 351 Project 1 Running head FIN 351...

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