Money Matters Presentation
Purposes and Functions of
the Federal Reserve System

The legislation that created the Federal Reserve System also gave it some lofty (albeit questionable) reasons to exists. The functions and macroeconomic objectives listed below come from a Power Point presentation prepared by the St. Louis Fed (Purposes and Functions of Federal Reserve System — PDF Version) that sums up the purpose and objectives for the Fed.

The Federal Reserve’s Functions

Macroeconomic Objectives

Theoretical Errors

The macroeconomic objectives of the Fed contain numerous theoretical errors. In general they amount to "errors of aggregation" (summing units that will not sum, e.g. adding the prices of pigs to the prices of cell phones).

I will highlight some of those errors here, with a brief elaboration.

Economic Growth in line with the economy's potential to expand
The "economy's potential to expand" is unknown and unknowable
A high level of employment
Shifts in money quantity cannot create "a high level of employment;" it can only distort information that business people use to make employment decisions.
Stable prices
Unstable prices carry valuable information about shifting resource allocation in the economy. "Stabilizing" those prices only distorts that information.
Moderate long-term interest rates
Rising and declining interest rates also provide valuable market information. To maintain any long-term interest rate target—like setting targets for any prices—only distorts that information.
Next we move to a brief clarification about Currency & Reserves.