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The Feds define monetary policy as actions that it partakes to influence the access and cost of money to fulfills the goals set up by Congress, a suitable price level and suitable work. A wider classification of monetary policy would include policies, statements, directives, and forecasts of the economy (Gagnon, 2010).
During the 2007/2008 financial crisis, the federal bank took on some measures as concerning its monetary policies to try and salvage the situation. The Feds sought to target the federal funds rate. In December of 2008, the Feds brought down the federal funds rate to a range of between 0 to 0.25% also called the zero lower bound. The Fed could not provide at that time any more stimulus by the use of conventional policies. So the Feds turned to unconventional policies to further provide stimulus to the economy. It has made a promise to keep the Federal funds target low for as long as unemployment is above 6.5% and inflation is low (Labonte, 2012).
The Feds also attempted to stimulate the economy through several rounds of asset purchases of Treasury securities and those securities issued by government sponsored enterprises. Since September 2012, the Feds have made large purchases of mortgage-backed securities and Treasury securities. However, unlike the two previous rounds of asset purchases, this time the Feds offers no specific date when it ends these purchases instead pledging to continue acquiring until the labor markets improve. In December of 2013, the Fed announced that it would begin tapering off those purchases. Going by the current course of the financial situation, this may be seen as the first step towards ending of the unconventional monetary policy (Labonte, 2014).
Monetary policy changes have effects both in the long term and the short term. In the short term, when all other factors remain the same, an expansionary monetary policy that reduces interest rates will increase
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