Question

Why would the president worry about the possibility that the appearance of Fed independence might be​ undermined? A. It could undermine confidence in the Fed and impact market conditions. B. It could instill confidence in the Fed and worsen market conditions. C. It could instill confidence in the Fed and improve market conditions. D. It could undermine confidence in the Fed but would not have an impact on the markets.

Answer 1

Answer: A. It could undermine confidence in the Fed and impact market conditions.

Step-by-step explanation:

Independent Central banks are preferred as they keep market conditions stable by controlling inflation and affecting interest rates. For instance, Independent central banks have generally been favored by investors due to studies showing that they keep inflation rates low as opposed to countries where the Central bank is controlled by the government.

Investors like this as it reduces the erosion on their rates of return by inflation. If there is any indication that the Fed is no longer independence or less independent, market conditions might be affected as investors become worried about inflation amongst others and the market responds by raising interest rates to compensate.