Economics; Policy Recommendation-FOMC - Term Paper Example

Download file to see previous pages The 1913 Federal Reserve Act has given the Fed the liability for setting monetary policy for the country.
There are three measurement tools of the Fed through which it manages the monetary policy. These are- (i) open market operations, (ii) the discount rate, and (iii) reserve requirements. The FOMC is accountable only for open market operations. On the other hand, the Board of Governors of the Federal Reserve System controls discount rate and reserve requirements operations. Manipulating these three policy tools, the Federal Reserve influences, and controls the demand for money and supply of money in the economy. In this way, the Fed maintain the balances at Federal Reserve Banks, which the depository institutions hold. In this way, the Fed adjusts and modifies the federal funds rate, which is nothing but the interest rate from time to time, and when required. (FOMC).
Any changes in the rate of interest or the federal funds rate by the Fed, in turn, results in a lot of movements in the economic parameters, such as the liquidity amount of money and availability of credit in the economy, changes in other short-term interest rates, long-term interest rates, foreign exchange rates, etc. Eventually, these changes result in affecting the change of the economic variables regarding output, growth, employment, prices of goods and services, etc.
From the December 2009 meeting of the Federal, Open Market Committee there emerged some suggestions regarding future policies. It was argued in the policy prospect that there will be taken supportive economic activity for strengthen the economy. The committee has anticipated a high reduction in the weakening of the labor market. Though household spending is growing and getting higher at a reasonable rate it is expected to continue guarded by the dwindling of the labor market, humble growth of income, poorer housing assets, and a policy of tight credit. Business expenditure seems to increase on the ground of software, tools, and equipment. However, structural investment is toning at the best. Employers appear to stay unwilling to add to payrolls. Stocks of inventory by the firms have been considered in a better arrangement with sales. When lending by commercial banks persists to contract, the condition of the financial market still stay helpful, sympathetic, and encouraging to economic growth. As the crisis has not been completely evaporated, the velocity of the economic improvement is expected to be reasonable for the present time. In the context of stabilization of prices, the Committee is hopeful of a slow but stable return of the utilization of the resources to the higher levels. It has been expected by the committee that the inflationary pressure is likely to be quiet, at least for the time being with the stability of the long-run inflation expectation and with the continuation of the significant resource sagging to control cost pressures. ...Download file to see next pagesRead More