Commentary At last week’s press conference, Fed Chair Jerome Powell said if the Fed knew then what it knows now, it would have moved sooner to raise interest rates to contain inflation. The Fed didn’t know what it should have known because it still fails to consider the money supply when forming policy. The Fed was created in 1913. Its purpose was to make sure there would never be too much or too little money in the economy. To accomplish its objective, the Fed was given an awesome power—the power to create, or remove, money from the economy. Rather than closely monitor the money supply, the Fed chooses to manipulate interest to regulate the flow of money in the economy. However, interest rates are only indirectly related to the money supply. Using interest rates to control the amount of money may be appropriate when the economy is highly stable. When …
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