Monetary Policy Coursework 9 - Essay Example

Monetary Policy al Affiliation The Fed should use the restrictive monetary policy tool to slow the economic growth,hence smooth the business cycle. Through this policy, the Fed raises the interest rates to discourage further investments within the economy. For instance in 1994, the Fed made a decision to increase the rates by 7%. This smoothing process helps to achieve a soft landing for the American economy. Similarly, the expansionary monetary policy tool aims at reducing interest rates in order to encourage more investors into the economy. The lower interest rates increase the amount of output especially in the periods of recession. This streamlines the business cycle by increasing the output available in the US economy, hence providing surplus goods for exports and subsequent economic growth.
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The Federal Open Market Committee (FOMC) aims at exploring the achievements of full employment as well as price stability (Econedlink.org, 2015). Therefore, the implementation of the US federal funds rate policy deals with the interest rates at which banks lend funds amongst themselves. The intermediary used by these banks is the Federal Reserve. The goals of the federal funds rate policy are to ensure US economic growth, monitor inflation, and increase employment. The Fed reduced this rate by 0.1% in mid 2014, and the results were diverse. In as much as the inflation rate as at January rose by 0.2%, the unemployment rate reduced by 5.5% in 2015. The US economic growth was positive by 2.2% in the last quarter of 2014. Evidently, the federal funds rate policy achieved its main goals: the reduction of unemployment and the growth of the economy.
References
Econedlink.org,. (2015). Focus on Economic Data: The Federal Reserve and Monetary Policy, January 29, 2015 | EconEdLink. Retrieved 3 June 2015, from http://www.econedlink.org/economic-resources/focus-on-economic-data-federal-reserve.php Read More