Business Surveys

Once, the Federal Reserve’s job was to take away the punch bowl when the party got going.

Now, central bank policy-makers are acting like parents lecturing teenage children on the dangers of drinking and driving — while making clear they are willing to provide a ride home at any hour to prevent a tragedy.

Until the collapse of U.S. housing market and the credit crisis that became full-blown in August last year, the Fed was known principally for setting interest rates to ensure steady growth with low inflation, raising rates when the economy turned a bit too festive and cutting them when growth was flagging.

While the institution supervises large bank holding companies, those functions took a back seat, in the public eye, to monetary policy and macroeconomic forecasting.

But as a global credit crisis and painful U.S. economic slowdown drag on, the Fed has interpreted its dual mandate on growth and prices to include responsibility to maintain the stability of the entire financial system — an evolution that will mean more rules for financial institutions and an expanded caretaker function for the Fed.

That broader role — which has led to closer ties with investment banks and a menu of options to ensure credit markets remain liquid — has reshaped the central bank and will likely be subject to extensive scrutiny and debate for years to come.

SUPERVISORY ROLE

A rising tide of defaulting U.S free credit report without a credit card. subprime mortgages, which undercut the value of assets held by financial institutions around the world, has thrust the central bank’s regulatory authority, and its responsibility for financial stability, squarely into a not-always-flattering spotlight. 

Read more

Filed under: money by TheDoor