A Brief Analysis of the History of the Federal Reserve System from 1967 to 1997
When the Federal Reserve Act was created just past the turn of the century, the intent was to grant the Fed only one basic tool of monetary policy, the control of discount loans to member banks (Mishkin 1997). These powers were broadened during the Great Depression when the Board of Governors was given the authority to control the Reserve Funds (Mishkin 1997). From 1960 on, the Federal Reserve has assumed even greater powers, and the accrual of these powers is attributed to the man who has directed it for almost 10 years, Allen Greenspan.
The Federal Reserve Bank is a strange governmental creature (Mishkin, 1997). It consists of 12 regional Federal Reserve banks, each with a president, board of directors, officers, and research staff, plus the Washington-based board of governors, with the largest group of research economists. A recent article in Fortune describes the Fed:
The Fed is secretive by nature, suspicious of outsiders, and possessed of an esprit de corps that borders on fanaticism. When Greenspan was appointed chairman in 1987 by Ronald Reagan, he was greeted with some suspicion (Norton, Davies, Urresta, Welsh, 1996, 39).
The reason for this attitude is likely because "the Federal Reserve has extraordinary independence for a government agency and is one of the most independent central banks in the world. Nevertheless, the Fed is not free from political pressures" (Mishkin, 1997). Thus there is culture created where new members experience a sort of testing period to see how they will react to such pressures.
The Type and Nature of those Pressures
The pressures on the Fed can be broken down into two broad categories. There are the arguments created by those who wish to keep the Federal Reserve=s independence intact and those who would like to see more governmental control, typically from either the Congress or the Presidenc...