Recent statements by a candidate running for the White House
indicate an unusual degree of ignorance regarding how the US central bank
operates:
“Where Trump is most
clearly and dangerously wrong is in his accusation of political interference by
the White House. Yellen doesn’t make decisions about the interest rate on her
own. As chair, she has one vote on the Federal Reserve’s twelve-member Open
Market Committee, which is currently made up of five members appointed by
President Obama and seven members who come from regional Federal Reserve banks
and who are chosen by their own boards, made up of bankers, businesspeople,
and, in some cases, community representatives. It’s a diverse lot—several
members of the committee have shown no particular loyalty to the President.
What’s more, the board’s decision-making process about the interest rate is
public. We know how each of the twelve members vote at each meeting of the
committee. The Fed even releases a “dot plot,” which shows how the different
members expect to vote over the coming years.
This publicness has been designed for good reason. The Fed funds rate is the interest rate at which banks lend money to one another for overnight loans. In practice, this rate sets the tempo of the entire global economy, and changes to it ripple through every aspect of our economic lives. Sudden and unexplained moves would create panic.”
This publicness has been designed for good reason. The Fed funds rate is the interest rate at which banks lend money to one another for overnight loans. In practice, this rate sets the tempo of the entire global economy, and changes to it ripple through every aspect of our economic lives. Sudden and unexplained moves would create panic.”