The Federal Reserve and Monetary Policy - Essay Example

Similarly, the expansionary monetary policy tool aims at reducing interest rates to encourage more investors into the economy. The lower interest rates increase the amount of output, especially in 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

 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 to 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 in January rose by 0.2%, the unemployment rate was reduced by 5.5% in 2015.