“Why is the Fed reluctant to lower interest rates as much as politicians would like?” This is a question I’ve asked in my economics classes for decades as a way to highlight the Federal Reserve's role in managing our economy. But mostly, it focuses on the historical difference between the Fed’s monetary policy and Congress, which along with the President, controls fiscal policy. Congress and the President tend to be more short-term oriented, as they face re-election every few years. When unemployment goes up, those guys and gals get voted out of office; raising Americans’ taxes generally brings the same result. As a consequence, Congress and the President tend to favor expansionary fiscal policy, meaning increased government spending and/or lower taxes. Those decisions tend to keep the economy rolling along, but at the risk of downward pressure on the dollar and a huge national debt piled onto the shoulders of future ... Log in or subscribe to continue reading.
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