The Federal Reserves Benefits and Disadvantages

Table of Contents

Introduction
The Benefits of the Federal Reserve
The Disadvantages of the Federal Reserve
The Necessity of the Federal Reserve for the US Economy
Conclusion
References

Introduction

The functioning of the national financial system is reliant on the effectiveness of the management of macroeconomic factors for the stability of the domestic market. In the United States of America, the federal reserve has been established as a tool for regulating the economy of the country and balancing fiscal and monetary systems. Despite its use in the USA for a long time, the existence and management of the Federal Reserve are characterized by ambiguity due to the evident benefits and drawbacks that trigger an argument on the necessity of such a tool. Indeed, on the one hand, the Federal Reserve functions as a basis for a stable economy. However, on the other hand, it jeopardizes transparency and accountability due to the increases in interest rates and recent disapproval of the functioning of the Federal Reserve by the general public and some experts (Cox, 2022; Timiraos & Hilsenrath, 2022). This reflection paper is designed to discuss the arguments claiming the benefits and disadvantages of the Federal Reserve in order to justify the necessity of its existence.

First of all, it is necessary to gain an understanding of what the federal reserve is and why it is essential to know all its advantages and disadvantages. In addition, this aspect is one of the central bodies that regulate the financial market of the country and the monetary system. In addition, the Federal Reserve controls the entire banking system of the United States of America, which imposes special obligations and responsibilities. Moreover, this organization should not be questioned in its activities and perform its functions impartially.

The Benefits of the Federal Reserve

The federal reserve system was created in 1913 by President Woodrow Wilson. It functions as a major manipulator of the United States banks and economy and aims to provide stability to the market. The reserve is important as it oversees the banking system and serves to maximize employment, manage inflation, and stabilize interest rates.

Most significantly, thanks to the federal reserve, it became possible to create a unified currency in the country, which established simpler economic structures. This system increases accountability and predictability, which makes the economy more stable, allowing people to focus on the actions of the federal reserve. Additionally, the federal reserve takes into account economic risks by providing financial services to economic institutions and the government, which makes the economy more stable. It is worth adding that the main task of the Federal Reserve is the transformation of the countrys financial system. Therefore, it is necessary to introduce such characteristics as flexibility, security and stability so that it can resist external and internal factors of influence.

The Disadvantages of the Federal Reserve

Despite the significant positive features of the Federal Reserve, this phenomenon has some drawbacks that need to be paid attention to. Therefore, it lacks transparency and accountability and has been the center of recent scandals. In particular, the federal reserve is an autonomous organization that wields power over the US financial system, making it potentially dangerous even to the government. The transparency and accountability of this structure are questionable since it has the means to regulate and control economic processes. In addition, an organization may prioritize private interests over public ones, as it is influenced by individual lobbying groups. For example, the federal reserve can manipulate interest rates to respond to certain conditions in the economy. However, these processes can also be the result of the priority of private interests, which is potentially a threat to the economy.

The Necessity of the Federal Reserve for the US Economy

The federal reserve is necessary; nevertheless, public opinion or critics, it has served to provide the US with a stable monetary and fiscal system for over 100 years. Economic conditions are not always stable, which can be a threat to businesses and individuals. The federal reserve is necessary as an instrument of control over financial transactions, as well as a regulator of various economic fluctuations. Without this structure, the financial system will be extremely unstable and unpredictable and will not allow sustainable development for both business and the state. It is also important that the state receives significant borrowed funds from the federal reserve, which allows it to carry out activities and effectively regulate the economic field.

Conclusion

To summarize, this work dealt with the consideration of such a phenomenon as the federal reserve, which is the most powerful tool in regulating the countrys monetary system. The functioning of the federal reserve as an economic tool for stabilizing the financial markets is characterized by advantages and disadvantages. However, despite the inadequacy of transparency and accountability policies implemented by the authorities in charge of the Federal Reserve, its benefits outweigh the drawbacks, thus justifying its continuous use for managing crises in contemporary financially uncertain times. Since the Federal Reserve allows for obtaining a stable economic setting, and monetary and fiscal systems, this mechanism of national economic regulation proves to be effective and necessary.