Monetary Policy Analysis

Monetary policy describes the way that central banks work to reach desired macroeconomic policy goals including overall price stability, total employment, and consistent economic growth. The Federal Reserve of the United States has certain macroeconomic goals set by Congress such as reaching full employment and ultimate price stability (Economic Outlook, 40-41). In combination with these particular objectives, the United States Congress decided that the functional behavior of monetary policy should be independent of political influence. In turn, the Federal Reserve is an agency that functions independently and free from control by the federal government. The only times in which these lines between monetary policy and politics begin to blur …show more content…
Through the examination of the economic forecast, the FOMC determines how the present and future paths of fiscal policy might impact major macroeconomic variables like gross domestic product development, employment fluctuations, and causes and effects of inflation (FRB, 1). In this manner, fiscal policy inadvertently impacts behaviors of monetary policy through the tides it creates in the business economy and economic future. As an example, if federal programs dealing with finances and taxes are predicted to stimulate financial prosperity and growth, the Federal Reserve would look closely at this application of macroeconomic objectives; those continuing to be the stability of prices and and total employment rates, and make the necessary changes to monetary …show more content…
This targeting is a potential factor of why politicians try to influence monetary policy and the economy as a whole. They may have personal beliefs on whether the unemployment rate is too high, GDP gaps are too wide, or even that GDP growth is not high enough. This may be an attempt to push wages above market averages and to push for full employment in search of approval (Ehrmann & Fratzscher, 958-9). It is more effective for monetary policy to operate independently from the political spectrum in order to be as efficient as possible. Monetary policy can be described as the procedure of how a country specific monetary authority controls the money supply and in most cases focuses on interest rates used to boost economic stability and growth. Typically, desired outcomes would be generally stable prices and a low unemployment rate. Theory regarding the efficacy of monetary policy also offers a new perspective based on how to create desired economic outcomes generally reported as being either expansionary or contractionary (Ehrmann & Fratzscher,

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