Five Facts: The Federal Reserve
Last week, President Donald Trump told The Wall Street Journal that the Federal Reserve (commonly known as the “Fed”), the independent financial institution responsible for regulating the country’s monetary policy, is not doing its job facilitating economic growth. Trump expressed his dismay that the Fed has raised rates three times over the past year, and could possibly raise rates a fourth time before January 2019. The Fed is now in the process of returning monetary policy to its default state following the 2008 Financial Crisis, according to CNN.
Here are five facts about the Fed, and why critics are not happy with current economic policies:
1. The Federal Reserve was created in 1913 by President Woodrow Wilson following the Panic of 1907, one of the worst global financial crises of the 20th century. The Federal Reserve Act, which President Wilson signed into law, established a central bank for the entire country (for the third time, but the first time successfully). According to the Fed’s website, prior to the founding of this new institution, the U.S. economy experienced waves of “panic, bank failures, and credit scarcity.” President Wilson believed having a central bank would make the country’s financial system more secure and better protect consumers.
2. The modern-day Fed was shaped by President Jimmy Carter, who signed the Federal Reserve Reform Act of 1977. This amendment highlighted that the Fed is meant to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” In short, the institution is designed to help the economy thrive and promote social good.
3. During the 2008 financial crisis, the Fed helped stabilize the economy by deploying a number of tools, including cutting interest rates, providing targeted assistance to financial institutions, and buying mortgage bonds. Vox reported that, as the crisis worsened, the Fed had to enact even more unconventional monetary policy measures to salvage the economy. These tactics were compounded by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which changed how the Fed is governed, created the new Consumer Financial Protection Bureau (CFPB), and further regulated the financial industry.
4. However, not everyone agrees that the changes to the Fed since the financial crisis have benefited the American public. Some believe that, in light of the recently enacted tariffs and continued market volatility, the Fed should not keep raising interest rates, lest it hinder today’s record economic growth.
5. While Trump is not the first American president to speak out against the Fed, there haven’t been many others. According to CNBC, when Richard Nixon was up for re-election in 1972, he persuaded then-Federal Reserve Chairman Arthur Burns to keep a “loose monetary policy.” And in 1998, six years after George H.W. Bush left office, he complained that the fed’s policy during his term caused the recession that led to his 1992 re-election loss.
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