What is missing from the debates over monetary policy today is the understanding that the Fed was not established to control inflation. It was created to prevent financial crises by acting as a lender of last resort in times of distress. Indeed, that’s exactly what the Fed is doing now — opening up its lending facilities to banks in need. But rather than focus on maintaining financial stability, the Fed has become obsessed with controlling inflation, something it cannot really do without causing either a recession or a financial crisis (or both).
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