The US Federal Reserve has several options at its disposal to enact monetary policy within the United States. Some of these instruments are short term and long term. Some are in place to actually enforce policy while others are there to temper drastic changes or to meter other influencers that otherwise would attempt to control market conditions. In this assignment, we will talk about both policy and non-policy driven options the Federal Reserve can use and when they typically do.
As mentioned, there are several options the Fed has at its disposal at any certain time. Of those, I will focus on the following three; (1) Open Market Operations, (2) Discount rates and (3), Reserve supply. In discussing open market operations, we must first establish that this tool is not so much the enforcement of policy as it is a process to maintain market continuity. The vast majority of open market operations are not intended to carry out changes in monetary policy. Instead, open market operations are conducted on a daily basis to prevent technical, temporary forces from pushing the effective federal funds rate too far from the target rate. The Federal Reserve’s three instruments of monetary policy are open market operations, the discount rate and reserve requirements (fedreserveeducation.org). …show more content…
Open market comes from the foundation the choice of securities and their prices emerge from an “open market” in which the various securities dealers that the Fed does business compete on the basis of price.
The discount rate is the interest rate charged by Federal Reserve Banks to depository institutions on short-term loans. Changes in this rate are established by the Fed for several reasons, namely to spur economic growth, to decrease the effects of inflation, and to maintain the US economy on a global, competitive
As mentioned, there are several options the Fed has at its disposal at any certain time. Of those, I will focus on the following three; (1) Open Market Operations, (2) Discount rates and (3), Reserve supply. In discussing open market operations, we must first establish that this tool is not so much the enforcement of policy as it is a process to maintain market continuity. The vast majority of open market operations are not intended to carry out changes in monetary policy. Instead, open market operations are conducted on a daily basis to prevent technical, temporary forces from pushing the effective federal funds rate too far from the target rate. The Federal Reserve’s three instruments of monetary policy are open market operations, the discount rate and reserve requirements (fedreserveeducation.org). …show more content…
Open market comes from the foundation the choice of securities and their prices emerge from an “open market” in which the various securities dealers that the Fed does business compete on the basis of price.
The discount rate is the interest rate charged by Federal Reserve Banks to depository institutions on short-term loans. Changes in this rate are established by the Fed for several reasons, namely to spur economic growth, to decrease the effects of inflation, and to maintain the US economy on a global, competitive