If Congress passes legislation reducing Federal Reserve independence, financial market participants are likely to assume that

Question

Quizplus · Accepted Answer

Reducing Federal Reserve independence would likely lead to an increase in inflation because it would signal a lack of commitment to keeping inflation low and stable. This could lead to a loss of confidence in the central bank's ability to control inflation, which could cause inflation expectations to rise and ultimately result in actual inflation increasing. The other options (money supply declining, recession quickly following, and federal deficit rising) are not necessarily direct consequences of reduced Federal Reserve independence.

If Congress Passes Legislation Reducing Federal Reserve Independence, Financial Market