Is the Federal Reserve Irrelevant?

“John Maynard Keynes argued that monetary policy was ineffective during the Great Depression. Central banks are better at restraining markets’ irrational exuberance in a bubble—restricting the availability of credit or raising interest rates to rein in the economy—than at promoting investment in a recession. That is why good monetary policy aims to prevent bubbles from arising. But the Fed, captured for more than two decades by market fundamentalists and Wall Street interests, not only failed to impose restraints, but acted as cheerleaders. And, having played a central role in creating the current mess, it is now trying to regain face.”