motivations are causing analysts to reexamine the Fed's policy strategies over the past fifteen years. In retrospect, the Federal Reserve's performance in the turbulent economic times since the early 1970s raises many questions in a number of major policy areas. The three major functions of the Federal Reserve should be thoroughly examined within the debate over central bank independence: 1. The conduct of monetary and credit policy: This should include an examination of the Fed's selection of the ultimate goals of policy - price stability versus full employment growth. The Federal Reserve clearly operates under the goals set down in the Federal Reserve Act (including, of course, all the contemporary amendments): the Federal Reserve System and the Federal Open Market Committee should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates" (Board of Governors of the Federal Reserve System, 1994, p. 17). The Fed's ultimate goals are also related to the objectives laid down by Congress in the Employment Act of 1946 ("maximum employment, production, and purchasing power"). The Board of Governors, however, seems to set a narrower policy target (zero-rate inflation, for example) that appears at times to conflict with the policy program of Congress and/or the administration. Beyond these ultimate objectives defining the performance of the nation's economy as set by the body politic, the Federal Reserve has considerable flexibility in setting intermediate target variables and day-to-day operating targets. At various times the Fed has experimented with a variety of money and credit aggregates as guides to achieve the ultimate performance goals. But even in formulating and carrying out policy concerning intermediate targets, the Fed is subject to congressional requirements under the Humphrey-Hawkins Act (1978), amending the Employment Act of 1946. Accordingly, the Fed must announce it...
