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The Power of the Fed

Jose Solivan, M00277003

Inter American University Metro Campus

BADM 697B Seminario Integrador de Finanzas

Dr. Antonio J. Fernós Sagebién

November 22nd, 2023

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The Power of the Fed

In examining “The Power of the Fed” with an ethical eye, numerous considerations emerge

beyond economic policy. The Federal Reserve’s decisions ripple through society, influencing

individuals, companies, and nations. In exploring the ethical dimensions of the Fed’s actions, my

analysis delves into concerns such as transparency, accountability, and the distributive effects of

monetary policies. It reveals the delicate balance between economic imperatives and moral

responsibility in shaping the financial foundation of our society. Throughout this exploration, we

will examine three examples of prominent ethical issues.

1. The Federal Reserve’s acquisition of over a trillion dollars in mortgage bonds from banks

to accelerate the recovery process raised ethical concerns. As individuals faced job losses

and foreclosures, the Fed’s aim to enhance credit accessibility for the average American

raised uncertainty about how its financial instruments would be utilized to assist. The

decision compromised the Federal Reserve as the entity was unable to perform its

primary responsibility of protecting the interests of the American people (NCSL, 2022).

2. The violation of proper fiduciary accountability was revealed by Jacoby, who claims that

experts exploited trust since customers blindly believed them and began trading in stocks

while they were on vacation. According to Potts & Matuszewski, (2018) when an actor

has access to the value of assets linked with an engagement of service, he or she is liable

under fiduciary obligations. This access gives the fiduciary the ability to influence the

economic and physical well-being of a beneficiary. Following the mandates of state and

common law, all board directors have three fiduciary responsibilities: a responsibility to

exercise reasonable care, a responsibility to be loyal, and a responsibility to obey (Potts &
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Matuszewski, 2018). It is critical for all board directors to understand how their

responsibilities fall into each category of fiduciary duties, which can be found here.

3. The Federal Reserve ignored the problems that the American people were facing in order

to stabilize the economy. Santa University, (2022) argue that because the Fed's

instruments were channeled through Wall Street organizations, they benefited those who

didn't need them the most: the rich and powerful. The government's lack of fairness in

this situation constituted a moral shortcoming. Ethics in the justice system include

avoiding stereotyping, ensuring that suspects are protected by their rights, determining

the appropriate amount of force that should be used to restrain them, and ensuring that

public employees are living in accordance with their moral principles when they are not

working (Wieland, 2016).

In conclusion, the three examples highlighted in this analysis serve as sad illustrations of the

ethical complexities inherent in the composition of our society’s financial framework. Moving

forward, the Federal Reserve will need to slowly pull back from its supportive position until it

has reached the goals on employment and inflation and to exit from its Quantitative easing policy

and lower interest rates operations. Also, the Federal Reserve needs to consider fostering greater

transparency in policy implementation and implications communications and of the overall

decision processes, this will promote public understanding and trust. They should also implement

robust mechanisms for accountability which will ensure responsibility and governance to

mitigate potential ethical lapses that can guide adjustments to minimize unintended social

inequalities. By incorporating these recommendations, the institution can work towards a

financial system that addresses economic essentials and supports ethical standards for the benefit

of each individual and society in general.

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References

NCSL, N. (2022). Center for Ethics in Government | Governmental Ethics Issues. Ncsl.org.

Retrieved 15 March 2022, from https://www.ncsl.org/research/ethics.aspx.

Potts, S., & Matuszewski, I. (2018). Ethics and Corporate Governance. Corporate

Governance, 12(2), 177-179. https://doi.org/10.1111/j.1467-8683.2004.00357.x

Santa University, S. (2022). What is Government Ethics?. Scu.edu. Retrieved 15 March

2022, from https://www.scu.edu/government-ethics/resources/what-is-government-

ethics/.

Wieland, J. (2016). The Ethics of Governance. Business Ethics Quarterly, 11(1), 73-87.

https://doi.org/10.2307/3857870