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1

Federal Reserve have been under constant criticism from monetary policy experts, it was established to act as central banking in united states in 1913 and since then the critics have never stopped. Federal Reserve emerged as post 1907 economic crisis reform. It has been criticized for lack of effectiveness, lack of adequate banking regulation and possibility of distorting the market.

Nobel laureate Joseph Stieglitz for example was critical of the way Federal Reserve responded to 2007-2010 financial crises. He was critical of the creation of currency as a means to counter liquidity trap. Banks created $600 million and injected directly to the banks with the intention of spurring banks to finance more domestic loans and refinance mortgages. He criticized the bank for spending the money meant for that role in profitable businesses by injecting money instead to internationally emerging markets. He also criticized the move by banks to invest in foreign currencies which he claim would probably lead to currency wars as China redirects its currency holdings away from the United States. Fed is also audited differently from other government agencies and often leads to confusion. There has been criticism of public confusion whereby fed is accused of publishing several information’s on their websites that hoodwink the public.

2

Philips curve really no longer exist in United States. It started dawning in 1970 that Phillips Curve trade off no longer existed – that is the pattern was no longer consistent. The common and most used relationship between unemployment and inflation seems to no longer exist. It was possible to have a number of inflation rates for any given unemployment rate. In some cases unemployment felt to record low while inflation remain constant over time and this appeared to disprove the existence of Philips curve in united states. Indeed, in the long-run, there is no trade-off between unemployment and inflation.

3

Monetary policy is better to stimulate expansion in United States because it promotes “maximum” sustainable output and employment and also promote “stable” prices. It will also be more prudent if the federal government seek for a middle ground between monetary and fiscal policy because combining aspect of this policies will effectively solve economic problem. Each of this policies have advantages and disadvantages because, fiscal policy seems to have greater effects over long periods of time and monetary policy has proven to have some short term success. A mixture of both will thus be more acceptable and effective.