Monetary policy refers to what the Fed is involved in in order to influence amount of money and credit that is in the U.S. economy. Interest rates and performance of the economy of U.S. is affected by what happens to money and credit. The primary way that the Fed conduct monetary policy is through their influence on the Fed Funds rate. Monetary policy goals include promotion of maximum employment, stabilize prices of goods and services, and moderating long-term interest rates. Fed should be certain that the monetary policy they implement is effective; this will help the Fed to maintain stable prices of goods and services, hence supporting long-term economic growth and a maximum employment. There are three tools of monetary policy: open market
…show more content…
So as to keep inflation stablelized, the fed raises the Federal funds rate by using its monetary policy tools. In this case, monetary policy is argued to be tight or contractionary. However, monetary policy is argued to be easy, expansionary or accommodative because the Fed can use it to fight recessions by lowering the Fed funds rate. Though there are three traditional tools (open market operations, discount rate, and reserve requirements) that the Fed has used to conduct monetary policy, other instruments have been added recently to its policy toolkit. Paying interest on reserve balances that are held at the Reserve Banks is one of these instruments that have been added. Over the past years, Fed has also involved itself in using some temporary non-traditional tools in fighting weaknesses of U.S. …show more content…
It refers to the interest rate that a Reserve Bank charges financial institutions that are eligible to borrow money on short-term basis. Federal Funds rate is determined by supply and demand for money in the banking system whereas discount rate is not determined by any factor but just set by the board of directors of the Reserve Bank. After these board of directors have set it, it is then approved by Board of Governors. However, it is standard that the level of discount rate is set above the Fed funds rate. Discount rate is not included in the game because it is a monetary policy tool and not a monetary policy goal towards improving the U.S. economy.
Responses
1. The Fed does a great job in U.S. economy by making sure that there is maximum employment among citizens and ensuring that inflation is stablelized to avoid increasing the cost of living among people.
2. A witty Fed chair is require to adjust Fed funds rate effectively so that he does not cause recession or a situation where there are more unemployed people; he should be guided by monetary policy in all his actions. United States is the leading Country globally because the Fed Chair has managed to provide the nation with a monetary and financial system that is safe, flexible and
So as to keep inflation stablelized, the fed raises the Federal funds rate by using its monetary policy tools. In this case, monetary policy is argued to be tight or contractionary. However, monetary policy is argued to be easy, expansionary or accommodative because the Fed can use it to fight recessions by lowering the Fed funds rate. Though there are three traditional tools (open market operations, discount rate, and reserve requirements) that the Fed has used to conduct monetary policy, other instruments have been added recently to its policy toolkit. Paying interest on reserve balances that are held at the Reserve Banks is one of these instruments that have been added. Over the past years, Fed has also involved itself in using some temporary non-traditional tools in fighting weaknesses of U.S. …show more content…
It refers to the interest rate that a Reserve Bank charges financial institutions that are eligible to borrow money on short-term basis. Federal Funds rate is determined by supply and demand for money in the banking system whereas discount rate is not determined by any factor but just set by the board of directors of the Reserve Bank. After these board of directors have set it, it is then approved by Board of Governors. However, it is standard that the level of discount rate is set above the Fed funds rate. Discount rate is not included in the game because it is a monetary policy tool and not a monetary policy goal towards improving the U.S. economy.
Responses
1. The Fed does a great job in U.S. economy by making sure that there is maximum employment among citizens and ensuring that inflation is stablelized to avoid increasing the cost of living among people.
2. A witty Fed chair is require to adjust Fed funds rate effectively so that he does not cause recession or a situation where there are more unemployed people; he should be guided by monetary policy in all his actions. United States is the leading Country globally because the Fed Chair has managed to provide the nation with a monetary and financial system that is safe, flexible and