Is the Fed Redundant?

Reading the newspaper lately makes me wonder if the Fed is redundant. I looked up redundant -- it means no longer needed or useful; superfluous. 

Don't get me wrong, they do provide a lot of cheap entertainment. But that's about it.

We didn't always have a Fed. It was created around 1914 by the Congress. Congress felt it was not up to the task of supervising banks and regulating the economy. Sort of like Beavis deciding to create Butt-head.  

We have other institutions that regulate banks. The Comptroller of the Currency and the Securities & Exchange Commission regulate banks and could easily take over the Fed's role of bank supervision.

And then there is the supposed role of maintaining maximum employment with stable and low inflation. The Fed was given the unique role of creating and controlling the money supply to attain economic stability. But clearly, the Congress and the President are capable of doing those things. I say that because the Fed and Congress and the President don't really care about inflation -- they essentially have taken the employment drug and and do a great impression of the Three Stooges in that regard. I cannot imagine the Congress making a bigger mess of things than the Fed does.

For example. In the paper today I read that even though the Fed has exceeded the goal inflation rate of 2%, they have made up at least a hundred excuses as to why an inflation rate of 5.4% is not higher than 2%. It is very funny. How could Congress do anything more stupid than that? At what point do they decide that 5.4% is higher than 2%? Maybe when it hits 54%?

Of course, that whole discussion is misleading. The real problem with the Fed these days is the same problem as with Congress. These people are not motivated primarily by economics -- it is all politics. One does not have to be a Trumper to see that Biden/Powell are two liberal peas in a pod. Neither Biden nor Powell would do what is necessary to control escalating inflation because it might have negative short-term impacts on employment. There might be a news headline that says -- Biden/Powell cause interest rates to rise and that hurts the housing market. Gold-forbid such a headline. 

Which brings me to one more point about the Fed. That is this fiction about Fed bond purchases and interest rates. Powell keeps saying that they are going to taper and then they are going to end bond purchases which pump money into the system. He somehow separates that tapering from the role of interest rate management. That is nuts. If the Fed reverses its activities and stops providing trillions of dollars to money markets, surely interest rates are going to rise. That is what they should be doing. But how can they do that when they see tapering as separate from interest rates? That is really weird. Where do they come up with this stuff?

They would prefer to look the camera in the eye and explain that 5.4% is not higher than 2%. If the Congress already prefers liberal/progressive economic policies, why do we need the Fed too?  Abbott and Costello for sure. Enjoy the entertainment. 

Okay. I have pontificated enough. Am I recommending that we get rid of the Fed? Of course not. They might not have anything useful to add to economic stability and bank regulation, but they sure provide a lot of entertainment.