Federal Reserve System or Federal Reserve or very commonly called the fed, is the central bank of the United States. The federal reserve system was conceived by Congress to administer the nation with a safer, more flexible, and more stable budgetary and financial system. It was created in 1913 to maintain economic and financial stability throughout the country. The Federal Open Market Committee (FOMC) is the rate-setting arm of the Fed. The fed acts as the world’s biggest watchdog over the world’s biggest financial institution. Here in this article, we are going to discuss the various common misconceptions about the U.S.central bank. We are also going to discuss why this explanation is considered false.
5 biggest misconceptions regarding federal reserve:
- The Fed is to blame for the mortgage and student loan rates.
- The Fed works under its superintendence.
- The Fed prints money.
- The Fed is funded by the money of the taxpayers.
- The Fed acts with Wall Street in mind.
1: The Fed is to blame for the mortgage and student loan rates.
While taking a loan from some bank or some company, the first thought that comes in is the interest rate. Secondly that you are paying on your mortgage comes in your mind. And if you are thinking of purchasing a home then you must flinch on the fed hiking interest rates. These rates aren’t in compliance with feds policy moves at all.
The truth in this misconception lies in the fact that the fed slashed its funds during the crisis and wasn’t able to stimulate the economy, so it was decided by us central push high rates mostly in the mortgages.
It was mispositioned that this fed hike would be a thwack to the intuitive to millions of American students have taken a student loan or debt. But this was proven wrong clearing that the interest rates are not tied to the federal fund rates.
2: The Fed works under its superintendence.
It is a complete misconception that the US controls over the fed, but the truth is fed is completely audited. Officials do choose to raise or lower interest still it didn’t mean they don’t have to follow any rules. So this wrong conspiracy allegation on the fed is completely illogical.
The regional fed reserves are audited annually by some independent public accounting firm pf the board of governors. Even the board of governors is also audited .the resulting reports are updated regularly on the board of governors website.
3: The Fed prints money
The misconception lying about fed is that the money printed by fed is in the notice. The responsibility of the fed money is actually under the supervision of the US treasury departments. The coins are manufactured from the US mill and agency of illustrations and printing. Fed also doesn’t hold the responsibility to distribute the money. It directly manipulates money through its open market operations. The fed also pays for the securities of the reserves that the bank holds in the account. It allows us to aggregate the number of money deposits held by the client.
4: The Fed is funded by the money of the taxpayers.
Clients have got a misconception that a portion of their tax goes towards feds’ development wing. Though this is not a fact. It is completely independent of the congressional budgetary process. It receives its income from the interest that it draws on the maintenance of government reserves and treasuries
5: The Fed can eliminate the business cycle
Though they spiel of an overreaching goal to sustain economic expansion, still the recession is inevitable. They can though try to conquest their goal by tedious work but the complete prevention of the recession is imminent.
Apart from these, common misconceptions revolving around the Fed includes:
- The Fed is unconstitutional.
- The Fed can prevent income inequality.
The Fed can eliminate the business cycle