In 2006, the Federal Open Market Committee announced in a press release that it was raising its target for the federal funds rate to 4-3/4%, specifically warning of the dire threat posed by inflation. However, this only occurred after many years of historically low interest rates, designed to stimulate the American economy after the recession of 2001. The Fed's low rates, critics contend, were one of the primary reasons for the housing bubble and bust. With the benefit of hindsight, they state that the Fed should have never have allowed interest rates to sink so low, and should have raised rates to more normative levels far sooner than it did. This would have curtailed the American consumer's addiction to credit and stifled the spiraling housing bubble. But the Fed alone is not to blame: the Securities...
Still, given the Fed's critical role in governing interest rates, it must bear a great deal of responsibility for the financial debacle from which the nation is still attempting to extricate itself.
Monetary Policy In the United States, the Federal Reserve system is charged with implementing monetary policy (Investopedia, 2013). Monetary policy is essentially any the output of any central bank that seeks to manage an economy by means of manipulating the supply of money in the economy (Investopedia, 2013). The Federal Reserve (2013) defines monetary policy as what it does to "influence the amount of money and credit in the U.S. economy."
Monetary Policy and the Federal Reserve The Federal Reserve ("the Fed") is responsible for formulating and implementing the nation's monetary policy. Monetary policy is government actions to increase or decrease the money supply and change banking requirements and interest rates in order to influence spending by altering banker's willingness to make loans. An expansionary monetary policy increases the money supply in an effort to cut the cost of borrowing, which encourages
Monetary Policy Every economic activity in the United States is related to the policies that are decided by the monetary policies of the nation that are formulated. This involves all activities like purchase of houses, starting up of new business enterprises, and expansion of businesses, investments in new plants or machinery. It also affects our investment decisions like putting our investments in banks, bonds, or the stock market. It is also
" (ECB, 2007) Operational efficiency is held to be the most important of all the principles of operation for the ECB and can be defined as "the capacity of the operational framework to enable monetary policy decision to feed through as precisely and as fast as possible to short-term money market rates. These in turn, through the monetary policy transmission mechanism, affect the price level." (ECB, 2007) Equal treatment and harmonization
Monetary Policy Any change in the central back policy or the bank reserves, which is made to influence the interest rates and thus the investment, employment or production, is called the monetary policy. If the monetary authority wants to increase production, they need to increase the bank reserves. The bank then expands the money supply, which in turn reduces the interest rates. Monetary policy is one of the tools that a
" Andrews, 2004) The Fed has always been most concerned about the economy growing too fast, outpacing real development, than other, more publicly influenced government agencies, which are apt to look upon growth with purely rose colored glasses, as consumers wish to see more jobs and retailers wish to see more immediate short-term sales to generate profits. Also, consumers wish to borrow more money for durable goods. and, despite the recent
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now