What Is The Fed's Dual Mandate?

This role is achieved through the implantation of the monetary policies. According to Arnold (2008), Fed has several tools at it disposal that it uses in the monetary polices. These are; the open market operations which involve buying and selling U.S government securities in the financial markets. Further the bank is charged with the responsibility of determining the required reserve ratio. This ratio is given to the commercial banks dictating the minimum amounts that they should hold in to their accounts as deposits and for lending. Finally the Fed sets the discount rates putting in to consideration the overall market rates s well as desired effect on borrowing that the Fed seeks to achieve. In addition to these three major roles, as a bank, the Federal Reserve Bank can play the roles played by the commercial banks as the rules are not entirely prohibitive as far as this duty is concerned.

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.

In order to properly explain the expansionary economic policies that the federal government engages in, it is important to understand the vocabulary being used. The Federal Reserve Bank, commonly referred to as the Fed, “is the central bank of the United States” (Arnold, 2014). According to Steven Pressman (2013), “the Federal Reserve is the institution in which the federal government and private banks do their banking. The central Federal Reserve banks are responsible for monitoring banks and ensuring they remain solvent. They also control interest rates and thus borrowing costs for consumers and business firms. This, in turn, affects unemployment and inflation, giving the Federal Reserve substantial control over the U.S. economy.” Expansionary fiscal policy

Federal Reserve can be very confusing to understand and know what is their purpose and how they help the economy. The Federal Reserve was started in December 23,1913 by President Woodrow Wilson who sign the Federal Reserve Act. The Fed has many things that it controls in are economy. One of the Reason that President Woodrow Wilson put the Federal Reserve Act in to place because in 1913 there were a feel that banks were instable so many investors did not feel confident in the banks and felt that it was unsafe. One thing that made Woodrow Wilson make the Federal reserve is the people making a run on the banks frequently, which many bank at this time did not keep enough money in the bank and people panic heard about other banks falling so they would try and get all their money out of the banks as fast as possible. With so many people running on the bank would cause the bank to fell which became a big problem following the Great Depression. Then Woodrow Wilson need to find a way to make the bank safer and build a more secure financial system. One thing to understand is also the monetary policy which refers to Fed nation central bank, which influence the amount of money and credit in the U.S. economy and how we spend money and credit affects interest rates which help the U.S economy perform. However, the monetary policy main reason it to promote maximum employment, stable prices, and long term interest rates which help the feds control the economic growth.

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).

Economic growth, low unemployment, and overall financial system stability are a few of the goals of the Fed. For politicians in Congress, their goal is to be reelected, often times by any means necessary. The Fed follows the economic business cycle and can track patterns to predict when the economy may be headed for a trough and control the money supply as much as possible to avoid inflation, which would lead to less confidence in the U.S dollar. For politicians, the political cycle and the business cycle do not follow the same patterns. For example, if Congress was responsible for how much money was circulating in the economy, and there are no do-overs in elections, a candidate that wanted to be reelected could increase the money supply in enough time to get the votes for a win, and the citizens would not realize the effects of callously increasing the supply until after the elected official was in office. The intentions and goals of the two bodies need to remain independent of one another because there is too much room for human error and self-interest in

“1971 would become one of the great ironies of American monetary history.” (Lehman, Lewis E) In the economy the Federal Reserve can control the prices on product and when they do this they can move the price up and down to slow down the buying process or speed it up to help business make more money and help with employment. Furthermore, the Federal Reserve also controls the interest rates for banks because when inflation happens in the economy like when prizes of good and services are in high demand. The worker is going to want more money to compensate for working harder to supply the consumer or the product price goes up because it in high demand so the Fed will try and regulate the market by higher the interest rates to help manage the inflation. Then when work is slowing down the Federal reserve will lower the interest rate to help spark the economy to raise more jobs to lower the unemployment. It can also effect a lot of things in the economy. It like throwing a pebble in the water it then has a ripple effect in the economy it will spread in all around when one thing that is change it will affect many things. When they change the interest rates it like throwing in the pebble in to the economy that ripples through the economy effect the business and consumers. Which this help the Federal Reserve control the economy so they can accomplish

The United Stated Federal Reserve Board (the Fed), a component of the Federal government, conducts monetary policy. The Fed essentially plays the role for the nation’s banks that these banks play for us. Just as we borrow money from the banks, the banks borrow money from the Fed. Just as we pay interest on the money we borrow, banks pay interest on the money that they borrow from the Fed. The Fed can use monetary policy to decrease unemployment by lowering the interest rate that it charges banks. If banks are able to pay a lower interest rate to borrow from the Fed, they are likely to lower the interest rate that they charge the

The Federal Reserve should utilize a balanced approach to monetary policy. The current state of the economy—undershot employment and inflation goals—presents no conflict in achieving a neutral state. In fact any action that supports employment growth also moves inflation up toward our target (Evan

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.

With that said the basic function of the FED relates primarily to the maintenance of monetary and credit conditions favorable to sound business activity in all fields; agricultural, industrial and commercial. Among this some duties include the following: lending to member banks, open market operations, establishing discount rates, fixing reserve requirements and issuing regulations concerning these and other functions. Each Federal Reserve Bank is best described as a Bankers Bank. In a nutshell, member banks use their reserve accounts with their reserve banks similar to the way we use our own checking account. They may deposit in the reserve accounts the checks on other banks and surplus currency received from their customers, and they may withdrawal on the reserve. Thus a bank with excess in the reserve requirements can enlarge its extension of credit (loans). However, let's not forget that the Fed has the

      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

“All parenting manuals tell parents to maintain credibility and to set fair and firm rules. Most parents attempt to do so. But as all, or at least most, parents know, sometimes exceptions are necessary. Not all contingencies can be planned for.” Analogous to that, as the author, David Colander, points out is that policies can be created but there can be exceptions to any policy. To begin with, let’s consider the problem that arises from the fact that there is no oversight in the Federal Reserve. In other words, the Fed can do what it wants, i.e. increase or decrease the money supply, because of the discretion it has; almost like saying that police officers have no guidelines to follow and can do whatever they want with all the power their given. Second, the problem that arises out of the fact that the Fed assumes there is only one interest rate; however, there are various different types of interest rates. So this becomes a problem in the short-run but not necessarily in the long run, after the interest rates have averaged out. This means that consumer borrowing (or when banks lend money) they’ll do so differently because of the different interest rates that do exist. Third, exists with what I mentioned about the short-term and long-term effects; essentially, inflation,

Monetary policy effects the GDP inflation. “Between 1996 and 2000, real GDP in the United States expanded briskly and the price level rose only slowly. The economy experienced neither significant unemployment nor inflation. Some observes felt that the United States had entered a “new ear” in which business cycle was dead. But that wishful thinking came to an end in March 2001, when the economy entered its ninth recession since 1950. Since 1970, real GDP has declined in the United States in five periods: 1973-1975, 1980, 1981-1982, 1990-1991 and