The US Monetary Policy
In exploring monetary policy in the United States, it is essential to define what is meant by monetary policy. Monetary policy can be defined as the policy decisions and actions by the Federal Reserve System (Fed) that affect the banking system and money supply. This may seem vague, but by decisions and actions, we mean the goals, tools, and targets of the Fed.
In the following paper, I will look at monetary policy, "under a microscope." The Fed itself will be looked at, regarding the components of the unique system. Then, the goals of monetary policy will be explained, followed by the tools used to achieve these goals. Next, the instruments used to attain the goals and tools will be ...
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within the Fed. The Board consists of seven members, each appointed for 14 years by the President of the United States. The chair of the Fed, also appointed by the President, has a term of 4 years, and is sometimes said to be the second most powerful man in the country. The Fed is an inde-pendent agency, and thus does not take orders from either the President or Congress.
The US is divided into 12 Federal Reserve districts, each having its own Federal Reserve bank. (These districts can also be seen in the Appendix.) The district banks are like branch offices of the Fed, carrying out the rules, regulations, and functions of the Fed. The banks report to the Board of Governors on local economic conditions.
The US monetary policy is formally set by the Federal Open Market Committee (FOMC). The FOMC consists of the seven members of the Board of Governors, the president of the NY Federal Reserve Bank, and, on a rotating basis, four of the presidents of the other eleven banks. The ...
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system. This is ideal for two reasons. First, providing funds to a bank that is in dire straits is risky and not likely to be profitable, making it hard for private banks of institutions to perform this role. Second, the Fed has an essentially unlimited supply of funds with which to bail out banks in need. The reason, as you will see, is that the Fed can basically create money at will. (2, pages 269-271)
GOALS OF MONETARY POLICY
Monetary policy shares some of the basic goals of macroeconomic policy: high employment, price stability, exchange rate stability, and a high rate of economic growth. There are, however, a few specialized goals of monetary policy. They are interest rate ...
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"The US Monetary Policy." Essayworld.com. November 10, 2006. Accessed April 25, 2024. http://www.essayworld.com/essays/The-US-Monetary-Policy/55353.
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