US Monetary Policy - Questions and Answers
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This brief paper addresses US monetary policy through questions and answers about the Federal Reserve. First, the paper discusses problems facing the FED in achieving its goals. Then, the paper identifies and explains ways that the Federal Reserve affects the banking system through open market operations. Next, it explores how changes in reserve requirements and the discount rate affect the operations of banks and other depository institutions. Finally, the paper considers why the FED cannot set intermediate targets in terms of both monetary aggregates and interest rates.
From the Paper:"The influence of changes in the FED's targeted funds rate on inflation and economic growth occurs with a lag. This is why it is necessary for them to be forward-looking in setting an appropriate funds rate target. It must forecast future economic growth and inflation based on the data that is available on the economy and financial conditions, including a particular target path for the fed funds rate. As economic data becomes available, the Committee may find it necessary to change its forecast of future economic outcomes because of changes in various factors affecting the outlook. When the viewpoint for output and inflation does change substantially, the Committee may choose to adjust its fed funds rate target to achieve its longer-term goals. Therefore, the setting of appropriate monetary policy is a dynamic process (Plosser, 2008)."
"Changes that are made in the funds rate today will not have any appreciable effect on prices, employment, or output for at least several quarters. That means any decisions that are made today will depend, in part, on forecasts of the economy. While the forecasting task is a difficult one, there is a team of economists in Washington and in the Federal Reserve Banks that help to develop the projections and assess the economic landscape ..."
Sample of Sources Used:
- Dueker, Michael J. (1995). Narrow vs. broad measures of money as intermediate targets: Some forecast results. Review (00149187). 77(1), p41.
- Edwards, Cheryl L. and Sinzdak, Gerard. (1997). Open market operations in the 1990s. Federal Reserve Bulletin. 83(11), p859.
- Plosser, Charles I. (2008). The Economic Outlook and The Fed's Roles in Monetary Policy and Financial Stability. Retrieved February 20, 2010, from Federal Reserve Bank of Philadelphia Web site: http://www.phil.frb.org/publications/speeches/plosser/2008/01-08- 08_main-line-chamber-commerce.cfm
Cite this Analytical Essay:
US Monetary Policy - Questions and Answers (2012, August 27) Retrieved September 23, 2019, from https://www.academon.com/analytical-essay/us-monetary-policy-questions-and-answers-151673/
"US Monetary Policy - Questions and Answers" 27 August 2012. Web. 23 September. 2019. <https://www.academon.com/analytical-essay/us-monetary-policy-questions-and-answers-151673/>