Press Release. (2012, January 11). Retrieved May 23, 2012, from Board of Governors of the Federal Reserve System: http://www.federalreserve.gov/newsevents/press/other/20120110a.htm
In this paper I will explain which of the monetary tools available to the Federal Reserve are most often used and the reasons for that. I will also describe how expansionary activated conducted by the Federal Reserve impact credit avilaiblilty, the money supply, interest rates and security prices, and to conclude I will show the result of the transactions in the form of a balance sheet supposing the Federal Reserve
The imperious Fed, much like the English Crown two centuries ago, formulates and carries out its policy directives without democratic input, accountability, or redress. Not only has the Fed's monetary restraint at times deliberately pushed the economy into deep recession, with the attendant loss of millions of jobs, but also its impact on the structure of interest rates and dollar exchange rates powerfully alters the U.S. distribution of national income and wealth. Federal Reserve shifts in policy have generated economic consequences that at least equal in size and scope the impact of major tax legislation that Congress and the White House must belabor in public debate for months.
In conclusion, the job of Mr. Greenspan and the Federal Reserve is not an easy one. Whenever money is involved there is always great potential for problems. With the monetary policy always an issue, Mr. Greenspan has to constantly come up with ways to keep our economy steady despite changes nationally and internationally. This recently became a relevant factor. At the very moment Mr. Greenspan was expected to accept his ultimate reappointment as Chair of the FED he was in the process of making it painfully clear that he was not going to allow the rapidly growing economy to foster inflationary imbalances that would undermine the economy's record economic expansion. This and other important factors caused several short-term interest rate increases. This saga continues but the FED with all they have to do has steadily maintained an economy to be proud of for now.
Poole W. The monetary policy model. Business Economics [serial online]. October 2006;41(4):7-10. Available from: EconLit with Full Text, Ipswich, MA. Accessed January 10, 2012.
...ijffinger, Slyvester C.W, and Jakob De Haan. The Political Economy of Central-Bank Independence. Rep. no. 19.
Some economists blame the Federal Reserve’s inaccurate monetary policy. The easy-monetary policy since 2001 was deviating from the Taylor rule. (Alex, 2013)
In recent years, unconventional monetary policy has become more common. This category includes quantitative easing, the purchase of varying financial assets from commercial banks. In the US, the Fed loaded its balance sheet with trillions of dollars in Treasury notes and mortgage-backed securities between 2008 and 2013. The Bank of England, the European Central Bank and the Bank of Japan have pursued similar policies. The effect of quantitative easing is to raise the price of securities, therefore lowering their yields, as well as to increase total money supply.
Three monetary policy tools that are used in the economic world are open market operations, discount rate, and reserve requirements. When it comes to the monetary policy tools, they are all beneficial, nonetheless the open market operation is the primary and most important tool used by the Federal Reserve System and can be easily executed. Open market operations is the buying and selling of U.S Government securities on the open market for reasons of the growth of credit and money aggregates and the swaying short-term interest rates. It affects the banks reserve through buying or selling of bonds, which ca...
The idea that former Federal Reserve Chairman Ben Bernanke’s ‘Quantitative Easing’ program deserves the credit for healing the wounds inflicted on our nation from the housing collapse of 2008 omits two possibilities: that we actually haven’t recovered, and his policies have actually laid the path for an even greater collapse ahead. The Chairman’s actions hold no precedent, he himself has even admitted to flying blind. The bond and mortgage backed security purchasing program (known as Quantitative Easing’ or just ‘QE’) creating the artificial high by re-inflating asset bubbles was the easy part. To truly follow out the process an exit strategy must be laid to liquidate the nearly ‘$4 trillion dollars’ in toxic assets the Fed now holds without pricking the bubbles that it’s purchasing frenzy created. Federal Reserve quantitative easing must be scaled back as it is re-inflating the housing bubble and recklessly propping up financial markets. The longer we wait, the bigger the eventual explosion will be.
United States Federal Reserve. (February 11, 2014). Monetary Policy Report. Retrieved June 18, 2014, from http://www.federalreserve.gov/monetarypolicy/mpr_20140211_summary.htm
Kurtz, Annalyn , (2013), “Unemployment falls to 7%”, A Service of CNN, retrieved from: http://money.cnn.com
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
The recent Global Financial Crisis (GFC) initially began with the collapse of credits and financial markets, which caused by the sub-prime mortgage crisis in the US in 2007. The sub-prime mortgages were given to high-risk lenders (with bad credit history) who were in danger of defaulting, which eventually caused a global credit crunch, where the banks were unwilling to lend to each other. In October 2008, the collapse of the major financial institutions and the crash of stock markets marked the peak of this global economic slowdown (Euromonitor International, 2008).
Impact of monetary policy on the economy a regional Fed perspective on inflation, unemployment, and QE3 : Hearing before the Subcommittee on Domestic Monetary Policy and Technology of the Committee on Financial Services, U.S. House of Representatives, One. (2011). Washington: U.S. G.P.O.