This series articulates the Richmond Fed's views on issues of particular importance to the economy and the financial system.
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.
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.
It is unclear whether the United States should continue to subsidize the purchase of homes. While U.S. subsidies may have helped expand homeownership, they also may have made the economy more susceptible to shocks and more prone to sluggish recovery, as well as led households and financial institutions to take on risks that can jeopardize the economy at large.
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.
The underlying causes of unemployment can be ambiguous, which makes it difficult for policymakers to determine the effects of monetary stimulus. Given this uncertainty, policymakers are more likely to maximize employment over the long run by maintaining price stability.
Workforce development programs are often geared toward adult workers. But thinking about workforce development efforts as individual investments in human capital suggests that targeting younger people may yield high returns.