Describe the origins of the Fed and the arguments about the independence of the Fed

Answer 1

The Fed was established in 1914 as a response to several financial panics in the preceding decades. It was founded to act as a lender of last resort and to be able to keep the money supply from decreasing rapidly in times of economic downturn. One of the Fed's main goals today is the maintenance of stable prices and the reduction of inflation. Many economists believe that the Fed should be insulated from political pressures, which are usually biased toward more expansionary monetary policies and, therefore, inflation. Most current research shows that countries with independent central banks have lower inflation rates compared to countries where the central bank is more subject to direct control by politicians.