Opinion Essay On Monetary Policy

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Opinion Essay on the Use of Monetary Policy by the Feds
Congress delegated the responsibility of monetary policy to the central bank of the nation and the Federal Reserve. Nonetheless, it retained the oversight responsibility of affirming that the Fed adheres to its enacted responsibility of stable prices, functional employment, as well as average future interest rates. In order to meet its mandate on stabilizing prices, the Fed has developed a long-run target of about 2% inflation. The control of monetary policy by the Fed arises from its capacity to influence the supply of money and general credit conditions (Rudebusch 14). Usually, the Fed carries out monetary policy by establishing in place a goal for the federal fund's
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Consequently, economic growth was in the 7th year as the rate of unemployment approached the estimated level of total employment at the start of increasing rates. This was a new experience for the Fed’s as they departed from past experiences. Besides, the unprecedented stimulative policy stance taken by the Fed has been viewed as rather controversial (Rudebusch 14). This is as a result of the recent recession being severe. Therefore, economists fail to agree on how much slack is remaining in the economy today as well as how quickly the Fed should do away with the monetary stimulus. The intended policy path to be taken by the Fed’s encompasses both downward and upward risks. If the Fed decides to raise the interest rates slowly, the economy could overheat leading to high inflation and the possibility of financial instability.
On the other hand, if the Fed increases the rates too quickly, it can prematurely stop economic recovery. Drawing reference from the Eurozone and Japan during the 1990’s, those opposed to raising rates believe that by removing monetary stimulus immediately after a financial crisis, deflation can occur which can choke the expansion of the economy.
The Fed
raised the rates in December 2015 marking the first time since 2008. This was also the first time in many years that the short-term interest rates
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