Monetary Policy Provided By Federal Reserve System

When there are problems in the United States economy, whom do the people turn to? The most obvious answer is the government. The federal government is given the responsibility of maintaining a stable economy. When the economy is not stable, like during a recession, the American people turn the government and demand that they fix whatever problem is occurring. The government can handle the economy in a recessionary period in one of two ways: expansionary fiscal policy or expansionary monetary policy. The sector of the government that handles the economy using these policies in a recession is the Federal Reserve. The best course of action to get the United States out of a recession is to use expansionary monetary policy.

In 2016, the crude oil price movement prices were unpredictable. The OPEC reference basket dropped 10 percent to $43.22 per pound. The ICE Brent and NYMEX WTI both went down by 8.4 percent with ICE Brent at $47.08 per pound and NYMEX WTI at $45.76 per pound. This showed that there were uncertainties in the petroleum market. The future prices were predicted for 2017 that it would move higher. The World’s economic growth predictions was the same at 2.9% for 2016 but increased to 3.1% for 2017. Because of the 3rd quarter of 2016 in Japan and US, the OCED growth went from 1.6% to 1.7%. The demand for oil growth in 2016 has been increasing slightly to 1.24 mb/d. In 2017, the demand will be predicted with a decrease to 1.15 mb/d. OECD will

The health of the current U.S. economy appears to be growing gradually. The second quarter real GDP growth was 3.7% and the unemployment rate declined to 5.3%. The U.S Federal Reserve (Fed) is expected to raise interest rates in the near future when it sees clear signs of strong economic growth and improvements in the job market.

It is clear that the economic policy in general and the monetary policy in particular should be concerned with the overall economic well-being. In this paper we propose to discuss this core topic. We will provide an overall picture of the functioning mechanism. In this regard, the discussion will develop around the governmental policies and of FED, and their scope on the free market. The argumentation will refer to the notion of common good and will try to establish if the measures applied by FED have fulfilled their intended purpose given the recent international financial crises of 2007.

The Federal Reserve has three tools to help maintain and make changes within money supply and policies. The first tool and most popular tool is open market operations. The Reserve uses this instrument to regulate the rate of federal funds within the system, which is merely the rate in which banks borrow reserves from other banks. With this tool, they can alter the interest rates and amount of money on the open market. Therefore, the Reserve can essentially control the total money stream, whether that is expanding and contracting it.

Describe the creation of the Federal Reserve System and its role as agent and bank regulator;

The Federal Reserve, Bureau of Labor Statistics, Department of Labor, Department of Commerce and Treasury Department play crucial roles in the value and availability of money in the USA economy. First, the Federal Reserve is the central bank of the United States. It is run by a Board of Governors appointed by the president and serves as a bank to banks. It performs five general functions to promote the effective operation of the U.S. economy. One, it conducts the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy. Second, it promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the

United States Federal Reserve system, also known as Federal Reserve or simply “Fed” is the United States central banking system. The Federal Reserve took inception in 1913, after the adoption of the Federal Reserve Act. The United States Congress has mandated three macroeconomic objectives to the Federal Reserve. These are minimum levels of unemployment, prices stability and keeping in check the rates of interests. Over the years, the role of Federal Reserve has expanded. It now formulates the country’s monetary policies, conducts supervision and regulation of the banking institutions, maintenance of the financial

The article by Justin Wolfers describes how the Federal Reserve System (Fed), also known as the central bank of the United States, can alter monetary policy to help the economy recover during downtimes and recessions. Although the Federal Reserve System is not technically a political institution, such as that of the Bank of Canada, after it was nationalized in 1938, with its overall responsibilities lying with a board of directors. In other words, the Fed does not stack the deck to assist either the Democrats or Republicans; their decisions can still be influenced by congress and presidential elections due to the fact that a lot of the principles in money and banking are political. For example, changes in fiscal policy can also help an economy recover, which is defined as policy that involves decisions about government spending and taxation. Additionally, if the Fed were to turn to unconventional measures leading up to an election, political outrage, especially from Congress, would be likely. Therefore, these policy-makers at the Federal Reserve System are often left inadequately prepared to respond to an economic downturn or recession.

As economic growth increases moderately in 2014, the rate of inflation is expected to remain below 2 percent. The price of goods in the country will continue to be restricted by global competition and use of production capacities that are relatively low as compared to historical averages. In addition, the inflation rate will remain below 2 percent because of decrease in energy prices and small increase in the prices of food. Nonetheless, while energy prices continue to reduce this year, the percentage of the decrease will be less while food prices may regain normal rate of growth.

BHP Billiton is the world’s top producers of major commodities. China, as BHP Billiton’s largest export market, demand strongly influences the BHP Billiton’s operation (Western Australian Iron Ore Industry Profile 2015). According to the annual report of BHP Billiton (2015), China brought about 36.6% revenue in the amount of total export revenue for BHP Billiton, among the largest product is Iron Ore, which was 66% in 2015. Meanwhile, the forecast of iron ore will continue to increase production. However, Chinese steel consumption may growth slow next few years (shows in figure 1) because the real estate industry decline (Mark 2015). Therefore, oversupply and weaker demand may create the fluctuations in commodity prices which related to commodity risk.

The Federal Reserve went into action in response to the 2008 recession by rapidly reducing interest rates with the hopes of encouraging economic growth. The federal funds target rate was decreased to between zero and .25 percent. The results of the rate changes caused what is called “zero bound”, this reduced the effectiveness of monetary policy with the near non-existence of interest rates.

Monetary policy rules are a fundamental part of the central bank models and are often refined to maximize economic welfare, specific to that country. Monetary policy rules are a methodical response of monetary policy events in the economy. Essentially, it can be thought of as a numeric equation, which determines the appropriate level for the central bank’s policy instrument to be a function of one or more economic variables that describe the state of the economy. It is imperative that economies model the reaction of their monetary authorities to changes in their respective economic conditions; this equation is essentially a “reaction function.” A reaction function utilizes its instruments to stabilize inflation and output fluctuations in response to demand or supply shocks. In a macroeconomic environment, the policy rules a Central bank develops is essential and thus numerous monetary policy rules have been discussed throughout economic literature.

Overall economic conditions are expected to improve over the next two quarters. As part of the monetary policy (quantitative easing part 3), Federal Reserve continues to buy bonds to influence low interest rates in order to increase investments. A decrease in unemployment and an increase in private consumption will drive the economic growth for the next two years.

Several authors including Bade and Park (1982), Alesina (1988,1989), and Grilli, Masciandaro and Tabellini (1991) found that more central banks are independent it would result in lower level of inflation. As Rogoff (1985) notes, dynamic inconsistency theories of inflation of the type developed in Kydland and Prescott (1977) and Barro and Gordon (1983) make it reasonable that more independent central banks will reduce the rate of inflation as delegating monetary policy to an agent whose preferences are more inflation averse than the societies preferences would serve as a commitment that allows sustaining a lower level of inflation. Insulating monetary policy from the political process helps enforce the low inflation equilibrium. Without