Please help me with this macroeconomices question?

Question

Those who advocate that the Fed target monetary aggregates, usually argue that the Fed should not alter its monetary targets in response to temporary changes in macroeconomic conditions, yet those who advocate interest rate targeting never recommend that the Fed maintain a constant federal funds rate target. Why not? (What's the potential danger of maintaining a rigid interest rate target?)

Answer 1

You are asking why people recommend money supply should not change and why interest rates should. The answer (simply) is that money supply changes create inflation, whereas interest rates are used to manage inflation. It is not easy to remove money from the money supply, but injecting extra cash into the economy will always lead to an increase in inflation. There are many other reasons though.

Answer 2

It is the lesson that Stalin and Mao learned the hard way. No central authority can be flexible enuf to react to changing market conditions.  And if they are slow, everything gets very bad very fast.  Much better to have a flexible policy that changes daily.

Another questioner mentioned people renting canoes to paddle out into the water when ballplayer Barry Bonds was playing.  He hit balls into the ocean because he was so good. The balls were worth $5,000.  Everyone rented a canoe for $10 to try to get a $5,000 ball.  When Barry got hurt, the canoe rentals stopped immediately.  No reason to be in a canoe on the ocean if you couldn't get $5,000.  That is how fast economic conditions can change.  Feast and famine.

Answer 3

Interest rates are influenced by the global financial player, and by U.S. banks.

The U.S. depends greatly on exported loans from foreign countries, like Japan, China, India, and Germany to fiance our national debt. If interest rates were to low, foreign investers would look else where to invest their capital, however a large portion of of foreign captial is in dollars, for example we owe foreign investers about a trillion dollars, It cost us about 30 billion per month in interest payments.