Research

Our Perspective

 

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This series of essays articulates the Richmond Fed's views on issues of particular importance to the Fifth District and the national economy, and their policy implications.

Too Big to Fail

The federal financial safety net is intended to protect large financial institutions and their creditors from failure and to reduce the possibility of "systemic risk" to the financial system. However, federal guarantees can encourage imprudent risk taking, which ultimately may lead to instability in the very system that the safety net is designed to protect.

Central Bank Independence

A Federal Reserve that is insulated from short-term political pressures but accountable to public concerns is more likely to pursue policies that align with its congressional mandate to promote stable prices, full employment, and moderate long-term interest rates.

Housing Finance Policy

As Congress discusses reforms to U.S. housing finance policy, it is not clear that the United States should devote substantial resources toward subsidizing homeownership. Owning a home may not be beneficial for everyone and current policies to promote homeownership may leave families, financial institutions, and society at large more vulnerable to adverse economic conditions.

Price Stability and Monetary Policy

Price stability is a significant objective of monetary policy. When inflation is high, variable or both, it interferes with the efficient operation of the economy and can reduce economic growth. In addition, once inflationary expectations have been set, bringing inflation back down can be painful.

Labor Market Conditions and Policy

When unemployment is high and inflation is low, the traditional argument has been for the Federal Reserve to pursue expansionary monetary policy to try to reduce the unemployment rate. The causes of unemployment vary, however, which can affect how the labor market responds to monetary stimulus. Policymakers are more likely to maximize employment over the long run by maintaining price stability.

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Laura Fortunato
(804) 697-8196
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Jim Strader
(804) 697-8956
(804) 332-0207 (mobile)