Federal Reserve Case Study

Since the Central Bank has the exclusive right to issue money in the economy, it can have extensive influence on the determination of interest rate in financial markets and in the economy as a whole, by adjusting the interest rate on short-term loans to financial institutions. Central Bank interest rates on these loans therefore have the most immediate impact on other short-term interest rates in the money market. By influencing interest rates, monetary policy then has an effect on the savings and expenditure decisions of individuals and corporate.

The Federal Reserve is the single entity in control of the monetary policy of the United State of America. Monetary policy is the process that the Federal Reserve takes in order to control the supply of money and to attempt the control the direction of interest rates. The reason for doing these actions is in attempt to control the country’s inflation and employment rates, which are the biggest indicators and factors of a healthy economy.

To be more precise in the way the monetary policy works, it is under three implements that define its functions: open market operations, changes in the discount rate, and changes in the required reserve ratio. These are the functions that provide the Federal Reserves (the Fed) the ability to change the money supply in our economy. It is a matter of actions taken to maintain our country in the best way possible and, of course, stability comes with a price. With things like supporting our troops in other countries, like Iraq and Afghanistan, a cut in tax rates, and increases in overall spending, it adds up to where we have spent more than we have collected in revenue (Fix the

By law, the Federal Reserve conducts monetary policy to achieve its macroeconomic objectives of stable prices and maximum employment. The Federal Open Market Committee usually conducts policy by adjusting the level of short-term interest rates in response to changes in the outlook of the economy. Since 2008, the FOMC has also used large-scale purchases of Treasury securities and securities that were guaranteed or issued by federal agencies as a policy tool in an effort to lower longer-term interest rates and thereby improve financial conditions and so support the economic recovery (What).

When economists think of monetary policy implementation they primarily focus on instruments, operating targets, intermediate targets, and policy goals. Instruments are the variables directly controlled by the central bank(Flandreau, 2007). These contain, an interest rate charged on reserves borrowed from the central bank, the reserve requirement ratios that govern the level of reserves banks must hold against their deposit liabilities, and the composition of the central bank’s own balance sheet. The instruments of policy are employed to accomplish a

The Federal Reserve System can also be referred to Federal Reserve or simply the FED. The Federal Reserve System is the central banking system of the United States. The Federal Reserve System was created over 100 years ago in December 23 of 1913. The Federal Reserve System was created in response to a series of financial panics particularly the panic of 1907. The panic of 1907 showed the need for central control of the monetary system if crises are to be avoided. Many events such as the Great Depression and the Great Recession led to the expansion of the role and responsibility of the Federal Reserve System. The U.S Congress established three key objectives for monetary policy in the Federal Reserve Act. The three key objectives for the monetary

The Federal Reserve System is the most powerful institution in the United States economy. Functioning as the central bank of the United States, acting as a regulator, the lender of last resort, and setting the nation’s monetary policy via the Federal Open Market Committee, there is no segment of the American economy unaffected by the Federal Reserve [endnoteRef:1]. This power becomes even more substantial in times of “unusual and exigent circumstances,” as Section 13(3) of the Federal Reserve Act gives authority to the Board of Governors to act unilaterally in lending and market making operations during financial crisis[endnoteRef:2]. As illustrated by their decision making in the aftermath of the 2007-2008 Great Recession,

The Federal Reserve exercises its power to stimulate stable employment economies and economic prices. The pursuit of the required employment rate and the creation of price stability, the Federal Reserve can increase or decrease the interest rate.

The CB uses open market operations to buy and sell securities as a means of implementing their monetary policies. They also used the open market operations as a way to control the liquidity of available money by influencing the short term interest and the supply of base money; therefore as a result controlling the supply of money. They also set the target rate for the feds and setting the discount rate at which for member banks to lend money to each other. The Feds also evaluate the bank mergers and also implements foreign exchange policy on behalf of US government and the

The United States government continues to attempt to control the stability of the economy through the monetary policies management of the United States money supply, being economically strong in the world’s economy is an attribute that the government continue to strive to maintain. Although theories leading to the Federal Reserve are controversial basic knowledge is important. This paper explores the monetary policies tools of the open market operations, discount rates, and the required reserve ratio. In the context monetary policies will be identified, explained, and the usages noted. Also highlighted is how the monetary policies are used to balance unemployment and high inflation. Monetary Policies plays a vital role in the upholding

The federal government reacted to the financial crisis that emerged in 2007 and affected industries in many ways. This crisis caused an economic meltdown that saw a lot of people lose their jobs, homes, and savings. The Federal Reserve implemented several solutions that were designed to improve the liquid assets of the financial institutions and create favorable conditions in financial markets. These solutions resulted in changes to the Federal Reserve's financial records. The solutions were enforced so as to fulfill the Reserve’s objectives on financial policies which involve employment and price inflation.

The primary objective of the Federal Reserve is to stabilize the monetary environment. The Federal Reserve has focused on achieving price stability and maximum employment while avoiding a recession. Within the goals of the dual mandate, the Fed encourages a target inflation rate of 2 percent and the unemployment rate between 4.5 percent and 5.0 percent to maintain a healthy economy. As of today, the inflation rate is 2.3 percent and the unemployment rate is 4.2 percent.

The Gross Domestic Product (GDP) is a calculation that provides insight into the current economy of our nation to allow individuals to understand the current and past year’s standings in the economy. The calculation of the GDP allows for the government to determine what adjustments are necessary to manage an effective status for the economy. Based upon the GDP the government can forecast any necessary changes that must be made to either the monetary policy or the fiscal policy. The wealth of a country is based upon the government’s ability to manage the economy through the monetary system and not on the amount of money that is located within that economy. The calculations for the GDP are produced to provide the most

Monetary Policy, in the United States, is the process by which the Federal Reserve controls the money supply to promote economic growth and stability. It is based on the relationship between interest rates of the economy and the total supply of money. The Federal Reserve uses a variety of monetary policy tools to control one or both of these.

      Monetary policy is under the control of the Federal Reserve System and is completely discretionary. It is the changes in interest rates and money supply to expand or contract aggregate demand. In a recession, the Fed will lower interest rates and increase the money supply. The Federal Reserve System’s control over the money supply is the key Mechanism of monetary policy. They use 3 monetary policy tools- Reserve Requirements, Discount Rates/Interest Rates, and Open Market Operations. The reserve requirement is the percentage of bank deposits a bank must hold in reserves and cannot loan out. By raising or lowering the reserve requirements, the Fed controls the amount of loanable funds. The interest rate is the amount the FED charges private banks, so they can meet the reserve requirements. The prime rate is currently set at 5%. If the Interest rate is low, the banks will borrow more money from the FED and the money supply will increase. Interest rates have been above average for the past 20 years, but are currently considered low. Open Market Operations is the most effective and most used