s targets for growth of money and credit in February of each year and review progress toward the intermediate goals and the economy's response at midyear. Meanwhile, the system operates on a daily basis directly on money rates (Federal funds, for example) to achieve the desired level of member bank reserves (excess and borrowed reserves) through day-to-day open-market purchases and sales of government securities, and by lending to the banks through the Fed discount window. Apart from the conduct of monetary policy, two other distinct functions should be examined carefully in any discussion of central bank independence: The regulatory and supervisory role of the Federal Reserve over the banks, other financial institutions and the foreign exchange, money, and credit markets. The lender-of-last-resort function to prevent massive bank failures and breakdowns in the money, credit, and foreign-exchange markets. Functions 2 and 3 are clearly related. Particularly since the oil price crises of the 1970s, inflation has been at the nexus of debate on the Fed and monetary policy. In the popular mind, inflation has become the subversive force in the capitalist, free-market economy. Even knowledgeable observers in government, experts in the private sector, and certainly Fed officials seem willing to acquiesce to any decision that is made in the name of fighting inflation. To win that battle, a veil of secrecy clouds the Fed's deliberations and activities. The central bank orchestrates public relations campaigns to present as persuasive a case to the media as possible for raising interest rates and tightening liquidity. Fed chairmen Arthur F. Burns, Paul Volcker, and Alan Greenspan are famous for their testimonies that disclosed really nothing in substance to the Congress, while Board members have often leaked selected information or even disinformation to the press and sympathetic congressmen.(5) Even the public debates of monetary policy have ...
