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An Overview of Monetary Policy-Making Bodies - Term Paper Example

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The author of this paper compares the operations and mandates of the three most influential monetary policy-making bodies, namely the US-Federal Open Market Committee, Bank of England-Monetary Policy Committee and European Central Bank-Governing Council. …
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An Overview of Monetary Policy-Making Bodies
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Download file to see previous pages The FOMC is considered as the foremost policy-making body of the US Federal Reserve. Its primary function is to formulate monetary policies which serve to promote economic growth, full employment level, stable price level and sustainable pattern of international trade (Federal Reserve Bank of Minneapolis). This aim is achieved by making key decisions pertaining to the conduct of open market operations, i.e. the selling and purchasing of US Government and Federal Agency securities. Open market operations mainly affect the provision of reserves to banks and other depository institutions. In this regard, open market operations impact the cost and availability of money and credit in the economy of the US (Federal Reserve Bank of Minneapolis).
As a background, the FOMC is composed of seven members of the Board of Governors and five Reserve Bank Presidents, who must meet at least four times a year in Washington D.C. as mandated by law. It is during these committee meetings that FOMC decides on the policies to be carried out through voting.
In view of the monetary decisions it has to make, the FOMC takes into account vital economic factors such as trends in prices, wages, employment, production, consumption, investments, foreign exchange markets, interest rates, and fiscal policies among others. It should be noted that the monetary policies are implemented with a primary focus on supplying level of reserves which is congruent with the economic objectives of the US, both in the short-run and long-run (Federal Reserve Bank of Minneapolis). This means that the control of open market operations is FOMC's major tool to directly influence the money supply in the economy. The movement in the money supply will then affect the other economic factors based on the economic objectives of the nation. The MPC's main function is to regulate prevailing interest rates at an appropriate level in order to attain the inflation target over a period of two years. This committee primarily considers the economic performance of the country and determines whether this is accompanied by the risk of acceleration in overall price levels ("Bank of England"). ...Download file to see next pagesRead More
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