The federal reserveis current monetary policy essay

Download Essay Get Full Essay Get access to this section to get all the help you need with your essay and educational goals. Furthermore, it is the funds rate that the Federal Reserve is currently focused on in terms of its monetary policy, rather than the discount rate and reserve requirements which remain as essential to the Federal Reserve as before in terms of formulating monetary policy.

The federal reserveis current monetary policy essay

Download Essay Get Full Essay Get access to this section to get all the help you need with your essay and educational goals. Furthermore, it is the funds rate that the Federal Reserve is currently focused on in terms of its monetary policy, rather than the discount rate and reserve requirements which remain as essential to the Federal Reserve as before in terms of formulating monetary policy.

Fox News reported in May that Federal Reserve policymakers had raised the funds rate in the face of an expected increase in inflation Associated Press. Given that raised rates of interest are expected to reduce consumer spending as well as capital investment, thereby reducing demand as well as prices, the Federal Reserve hoped to control inflation through the use of its primary tool of influencing economic activity.

Hence, whenever the Federal Reserves expects the rate of inflation to rise, the economy can expect a raise in interest rates. The increase in interest rates is in turn expected to slow down economic activity in the nation.

While slowing down economic activity is not a good idea, economists believe that high inflation could get even worse. On the contrary, whenever the Federal Reserve expects a recession to set in, its policymakers will reduce the rates of interest in order to make it more attractive for consumers to make purchases, and for businesses to invest in capital.

However, dramatic declines in interest rates do not always lead to increases in spending and investment. Reduced interest rates did not increase spending and investment.

Instead, they reduced the interest income of American families, thereby hastening the onset of recession Kane. Of course, the recession and the low interest rates were accompanied by the inverted yield curve. This is because long-term investors had settled for lower yields by assuming that the economy as well as rates of interest were going to go even lower in the future The Living Yield Curve, In Decemberit was reported that the Federal Reserve would keep the interest rates unchanged for a long while, perhaps through most of This is because the economy is showing mixed results at present.

Inflation is high, and so the Federal Reserve could have reduced interest rates to defeat the problem. All the same, decreased economic activity of the housing market has slowed down the rate of economic growth Idaszak and Goldstein, A slowing of the rate of economic growth, no doubt, calls for raising interest rates.

Yet the Federal Reserve cannot increase interest rates while the economy faces high inflation See table in Appendix with changes in the federal funds rate between and present. The decisions made by the Federal Reserve to change or keep steady the rates of interest do in fact influence economic activity.

What is more, economic activity has a direct influence on interest rates, seeing that it is economic activity in the nation that leads the decisions on interest rates. Investors foresee changes in economic activity and rates by analysis. The predictions they make lead to decisions on their part with respect to investments.

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Thus, a normal yield curve is the result of an expectation of steady growth and rates. On the other hand, a steep yield curve is made whenever investors have foreseen extraordinary growth and their investments through such growth.

Finally, when long-term yields are the same as short-term rates during a period of time, investors see a flat or humped curve. This is when an economic slowdown and low interest rates follow a period of flattening yields The Living.

The Federal Reserve is, of course, absolutely connected to the expectations of the investors as well as all kinds of yield curves. According to Chairman Ben S. Bernanke, this monetary policy would most probably foster economic growth, and also slow down inflation.

However, if this monetary policy fails to slow down core inflation, the Federal Open Market Committee would have to specifically address the risk of inflation through a change in policy.

The federal reserveis current monetary policy essay

During the first half ofthe inflation rate was rising. Now if the Federal Reserve were to increase interest rates, the housing market is expected to slow down in terms of economic activity even further.

This is the principal reason why the Federal Reserve would not increase interest rates to slow down the core inflation rate. The uneven growth of the United States economy is also due to the fact that even though there has been a slow appreciation of the price of houses in recent months, other sectors of the economy are not affected by it.

Monthly sales of new as well as existing homes were around 15 percent lower in the middle of as compared to the same period in Additionally, single-family housing starts dropped by more than 30 percent since the beginning of The growth of employment in the construction sector also slowed significantly.

Nevertheless, in the last half of the yearroughlyjobs were added each month to non-farm payrolls in the entire country.

Real hourly compensation also rose around 3 percent during the second half of the year. The unemployment rate, estimated at 4.

What is more, investment in high-tech equipment increased by 9 percent in the year 1 day ago · In other words, I take this to mean that Federal Reserve officials really believe that in raising the current level of the Federal Funds rate they are not really “tightening” monetary policy.

Monetary Policy and the Federal Reserve: Current Policy and Conditions. Congressional Research Service 7. target for conducting monetary policy.

If it wishes to expand money and credit, the Fed will lower the target, which encourages more lending activity and, thus, greater demand in the economy. Furthermore, it is the funds rate that the Federal Reserve is currently focused on in terms of its monetary policy, rather than the discount rate and reserve requirements which remain as essential to the Federal Reserve as before in terms of formulating monetary policy.

The reason for the Federal Reserve’s focus on the funds rate is, no doubt, that it is the need of the hour to have such a focus . Nov 04,  · The thinking behind the Federal Reserve's decision this week to buy an additional $ billion in securities. Among the Fed's responses was a dramatic easing of monetary policy - reducing.

Monetary policy The post has three asighnments 1:Monetary policy Order Description Visit the Board of Governors of the Federal Reserve website and read the latest Federal Open Market Committee (FOMC) statement which discusses the current type of monetary policy which.

The Federal Reserve Essays. The Federal Reserve Tanya Stone ECO/ December 5, Rina Bills The Federal Reserve The Federal Reserve is the part of the government that is responsible for making decisions on the monetary policy. They also print currency and manufacture coins. This paper will address what money is and the purpose of it.

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