Monetary Policy

The federal official grants financial Policy is the almost important function of the Fed and is probably the most utilize policy in macroeconomics. (cullender p.333). This paper will use The Monetary Policy Report submitted to the Congress on July 20, 2004 and Macroeconomics by David Colander to discuss the state of the economy, concerns of the Federal withstand, and the stated direction of new-made monetary policy.

The term monetary policy refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the accessibility and cost of money and credit to help promote internal economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the triplet tools of monetary policy- open market operations, the snub rate and stockpile requirements. Open market operations, purchases and sales of U.S. Treasury and federal bureau securities, ar the Federal Reserves principal tool for implementing monetary policy.

The send away rate is the interest rate charged to commercial banks and early(a) depository institutions on loans they receive from their regional Federal Reserve Banks lending facility; the discount window. The Federal Reserve Banks cracking three discount window programs to depository institutions: primary credit, junior-grade credit, and seasonal credit, each with its own interest rate.

Reserve requirements are the amount of finances that a depository institution must(prenominal) hold in reserve against specified deposit liabilities. The bestride of Governors of the Federal Reserve System is not responsible for the discount rate and reserve requirements; and the Federal Open Market perpetration is responsible for open market operations.

Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest...

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