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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED

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To: edamo who wrote (34144)	3/20/2001 9:05:12 PM
From: FR1	Read Replies (1) of 65232

unfortunately the federal reserve reform act of 1977, ...... granted the fed the ability to conduct monetary policy ... Correct me if I am wrong because you probably remember more of this than me, but I faintly remember that there were very big debates between congress and the FED in 1977 about exactly what their powers would be. The FED said that they wanted a completely free hand to work and any restrictions would make the whole deal meaningless. Congress, on numerous occasions during the debates, basically said to the FED "We do not want to create a situation where you go trigger happy and raise and lower rates with reckless abandon." The FED responded by saying they would only act when absolutely necessary but they did not want anything in writing because it would restrict their ability to respond to a crisis. In fact I think I remember seeing a old video clip of this where the FED responded to the question with a almost condescending remark implying "Of course we are going to be careful. Who do you think you are dealing with? We know the economy far better than you." What has happened since then, of course, is that the FED did exactly what they said they would not do. They basically redefined their job and nobody dared call them on it. edamo, Is this true:? During Carter years inflation actually did get out of control. Congress fought the FED who wanted to raise interest rates because nobody in congress wanted to be on the committe that approved a raise in rates. Consequently things got out of hand. The perfect solution, in the mind of congress, was to create a law that let the FED make all the decisions. That way the FED can be blamed for anything that goes wrong and nobody in congress would lose their election over it. Hence the 1977 act.

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