Current Monetary Policy Of The United States

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Current Monetary Policy of the United States Esraa Alhassan Jason Gurtovoy EC 210 4/9/2015 The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability. The first major aspect of the monetary policy by the Federal Reserve is its interest rate policy. This interest rate policy is mainly determined by the figure for the federal funds rate, which is the rate at which commercial banks with balances held within the Federal Reserve can borrow from each other overnight in ord... ... middle of paper ... ...y with abundant liquidity: a new operating framework for the Federal Reserve. Policy Brief PB14, 4. Kearns, J. (April 4, 2014). Fisher says QE Would End in October Based on Current Taper Pace. Retrieved June 18, 2014, from http://www.businessweek.com/news/2014-04-04/fisher-says-qe-would-end-in-october-based-on-current-taper-pace Labonte, M. (January 7, 2014). Monetary Policy and the Federal Reserve; Current Policy and Conditions. Congressional Research Service. Meltzer, A. H. (February 13, 2014). QE IS A MISTAKE—A BIG ONE. Retrieved June 18, 2014, from http://www.economics21.org/commentary/qe-mistake%E2%80%94-big-one United States Federal Reserve. (February 11, 2014). Monetary Policy Report. Retrieved June 18, 2014, from http://www.federalreserve.gov/monetarypolicy/mpr_20140211_summary.htm Williams, J. C. (2014). The Federal Reserve: inside monetary policy (No. 129).

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