Federal Reserve's Role: Economic Instability and Wealth Inequality
Few events in financial news garner as much attention as an announcement from the Federal Reserve. About eight times a year, the Federal Reserve's Federal Open Market Committee convenes to decide and announce its monetary policy plans. These announcements can significantly impact financial markets, causing either a surge or a decline.
It's understandable why a mere statement from the Fed can greatly influence markets. The Fed has immense control over interest rates, bank regulations, and the money supply. Among U.S. government institutions, none holds more sway over the economy, affecting the lives of nearly every American and many others worldwide, than the Federal Reserve.
Despite its profound influence, the Fed operates largely in secrecy, has never been audited by Congress, and faces little challenge from Washington or the mainstream media. This lack of scrutiny is striking, especially in an era of declining public trust in Congress, the presidency, the media, and even the military.
Much of the Fed's protected status stems from its supporters' long-standing success in propagating myths about its role in ensuring stability and prosperity. However, a closer examination reveals that the Fed often fails to benefit ordinary people or stabilize the economy. In fact, the Fed has been a key driver of the highest inflation rates in four decades, with significant increases in the prices of food, housing, healthcare, and transportation. This inflation often outpaces wage growth, leading to negative real income growth for millions of American households, particularly those with lower or fixed incomes. Conversely, Fed policies have inflated real estate and equity prices, enriching wealthy households, banks, and governments.
The Fed claims to expertly manage the economy, but since its establishment in 1913, it has frequently fostered economic instability, resulting in numerous crises such as those in 1953, 1957, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008, and 2020. The Fed's track record includes failing to prevent the Great Depression, 1970s stagflation, and the Great Recession—disasters that the Fed arguably contributed to.
The Fed insists, without evidence, that economic conditions would be worse without it. However, historical data shows that economic growth and rising living standards do not depend on the Fed. In the late 19th century, without a central bank, the U.S. experienced significant improvements in living standards, driven by deflation, which increased real wages by lowering the prices of goods and services.
Today, the Fed promotes the idea that economic growth depends on inflation, which erodes the dollar's purchasing power. Despite Congress directing the Fed to aim for 0 percent inflation as recently as the 1980s, the Fed established a 2 percent inflation target in the 1990s, claiming this level is necessary for economic stability.
Fed economists use various flawed economic theories to justify their inflationary policies, but the true motive is political. The push for more monetary inflation and ultra-low interest rates benefits powerful interest groups at the expense of the middle and working classes. By lowering interest rates to spur inflation, the government can borrow more cheaply, allowing for increased spending and larger budgets while keeping federal deficits manageable. Without the Fed, the excessive spending during the COVID-19 pandemic and the subsequent inflation surge would not have been possible. The government and its financial allies, such as bailed-out banks and government contractors, benefit most from these policies.
Ordinary people, however, face rising prices without the financial advantages enjoyed by those at the top. Contrary to its supportive myths, the Federal Reserve has always been a tool for wealth redistribution, fueling economic inequality and government excess. The Fed's mission lacks a foundation in sound economics, and reform is insufficient. The time has come to abolish the Fed.