What should the Fed (and Congress) do now?

Cato Institute/Norbert Michel/September-October 2022

“For starters, monetary policy should not be viewed as wholly independent of fiscal policy. The Fed serves as a fiscal agent of the United States. Even though the Fed is legally independent, it is, in practice, always under political pressure to accommodate the government’s fiscal policies. In large part owing to accommodating a recent federal spending spree, an active choice by Fed officials, the Fed now holds almost 30 percent of the outstanding federal debt held by the public, up from 22 percent in 2014.”

USAGOLD note: And we can be pretty much assured that the Fed’s 30 percent holding will increase the next time a financial crisis hits……Michel is director of the Center for Monetary and Fiscal Alternatives at the Cato Institute. As for what the Fed and Congress should do now, he offers a long list of reforms most of which center around the Fed playing less of a direct role in the day-to-day functioning of the financial system and the economy.

 

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