Fed is the powerful economic policy maker in United States and it both creates and carries out the monetary policy. The effects of Feds policies can be dramatic on the economy, these policies can move interest rates up or down, create recession or expansion, create inflation to go up or go down. The basic goals of Federal monetary policy is to promote sustainable output, promote employment and keep prices stable. These goals were prescribed in 1977 in the Federal Reserve act. In order to achieve the main goals of an economy, many factors come in to play other than the monetary factors themselves.
These factors include the technology, people's preferences, saving culture and people working effort. On the other hand, the economy goes through business cycles and it is the responsibility of the Fed to control and stimulate economy when in recession just like many other central banks in the world. Fed is supposed to make sure that inflation is at its low point without going to deflation, thereby maintaining low prices and stimulating economic output.
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The conflict arises when pursuing all these goals and the first conflict is deciding on which goal that will take precedence at a particular point in time. For example when there is recession, Fed may work toward minimizing employment losses. This short run measure may succeed but it may end up bringing long-term problem if the monetary policies stay expansionary for too long triggering inflationary measures. It is upon Fed to uphold a balance between its short run stabilization measures and its long-term goals toward maintain low inflation rates.
Another conflict in pursuing the goals of fed include political interference, the conflict comes when politician seek to pursue short run goals with short run results and fail to look on the long run impact on the health of the economy. The conflict occurs in many occasions and we only promote one at the expense of others. There are no absolute solutions to these conflicts but the Fed tries to bring trade off between the conflicting goals.
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