Michael E. Kanell: Federal Reserve Always A Lightning Rod For Credit, Blame
The nation's central bank has faced a series of crises in its 92 years as the chief economic overseer. From some, the Federal Reserve has emerged with kudos for averting disaster. Other times, it has been tarred for taking a situation from bad to worse.
That is mainly because --- except for the White House --- there is no other door at which to lay the blame, said economist David Feldman of the College of William & Mary in Virginia. "The United States has only one agency that can influence the economy the way the Fed can."
The Fed's record reflects mistakes but also says something about the Fed's limitations. The agency has tremendous power --- but the range of that power is narrow: The Fed controls short-term interest rates and the money supply.
Critics --- and the Fed has plenty --- can cite times they think the Fed flubbed. Supporters often see the same events through a rosier lens. Both understand that at crucial junctures in the nation's economic history, the course set by the staid Fed has profoundly affected the welfare of all Americans.
That's the history and tradition that economist Ben Bernanke takes custody of in January when he replaces 18-year Fed Chairman Alan Greenspan, pending confirmation.
The Fed has been sometimes controversial since its creation in 1913. At its core, it is not democratic --- its leaders are appointed and often outlast the president who named them --- and has been widely believed to fret more about the well-being of bankers than workers.
Since the mid-1970s, the Fed has been legally obliged to work toward both lower inflation and healthy economic growth.
"In general, if you have two goals, you need at least two tools, and the Fed has only one tool," Feldman said. "The Fed has done a heroic job of trying to hit two goals with one tool. The real power of the Fed is ... how the Fed handles shocks to the system. And in general, they have done a pretty good job of it."
At some important econcomic junctures in its history, the Fed has wielded those tools skillfully; other times, less so.
[Editor's Note: This is a very short excerpt from a much longer piece. Please see the Journal-Constitution for more.]
That is mainly because --- except for the White House --- there is no other door at which to lay the blame, said economist David Feldman of the College of William & Mary in Virginia. "The United States has only one agency that can influence the economy the way the Fed can."
The Fed's record reflects mistakes but also says something about the Fed's limitations. The agency has tremendous power --- but the range of that power is narrow: The Fed controls short-term interest rates and the money supply.
Critics --- and the Fed has plenty --- can cite times they think the Fed flubbed. Supporters often see the same events through a rosier lens. Both understand that at crucial junctures in the nation's economic history, the course set by the staid Fed has profoundly affected the welfare of all Americans.
That's the history and tradition that economist Ben Bernanke takes custody of in January when he replaces 18-year Fed Chairman Alan Greenspan, pending confirmation.
The Fed has been sometimes controversial since its creation in 1913. At its core, it is not democratic --- its leaders are appointed and often outlast the president who named them --- and has been widely believed to fret more about the well-being of bankers than workers.
Since the mid-1970s, the Fed has been legally obliged to work toward both lower inflation and healthy economic growth.
"In general, if you have two goals, you need at least two tools, and the Fed has only one tool," Feldman said. "The Fed has done a heroic job of trying to hit two goals with one tool. The real power of the Fed is ... how the Fed handles shocks to the system. And in general, they have done a pretty good job of it."
At some important econcomic junctures in its history, the Fed has wielded those tools skillfully; other times, less so.
[Editor's Note: This is a very short excerpt from a much longer piece. Please see the Journal-Constitution for more.]