Federal Reserve Monetary Policy

Federal Reserve Monetary Policy The United States' monetary policy is the Federal Reserve’s actions and communications that facilitate employment for American citizens, prices’ stability, and fair long-term interest rates (Federal Reserve, 2020). The above roles of the Federal Reserve are the directives of the Congress. However, Congress still has the responsibility of overseeing the Federal Reserve's every action to ensure it achieves it of mum employment and prices’ stability; hence, moderate long-term interests. Labonte (2020) notes that the Federal Reserve controls the United States' monetary policy due to its ability to dictate the money supply and lending conditions. The usual technique of conducting the Feds' monetary policy involves “setting a target” for the rate at which the United States banks can borrow money or lend other banks (Labonte, 2020). Thus, the Feds can influence the interest rates, which affects the business operations of various companies and organizations and how they spend their capital on different equipment. Also, Feds affect individual expenditure on various household items and investments.

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The Federal Reserve continue to brainstorm to update their policies and ensure they fit the prevailing economic conditions and income of American citizens. According to Rudebusch (2019), the Federal Reserve policymakers should assess and properly realize the economy's operation and evolution with time. Through such understanding, the Feds will efficiently facilitate macroeconomic and financial stability in the country, leading to more employment opportunities, stable prices, and fair long-term interest rates. The Feds should also be conscious of the primary factors that transform the economy (Rudebusch, 2019). The factors include technological advances, a growing older population, and climatic changes. The latter can significantly impact the United States economy through temperature shifts, droughts, and weather disasters. With these goals' attainment, the banks and other financial institutions in the United States can charge moderate interests on their loans to various borrowers, including individuals and business entities.

The Federal Reserve conducts the monetary policy by avoiding policy surprises. To ensure this, the Federal Open Market Committee (FOMC) holds a meeting every six weeks to set their federal funds target (Labonte, 2020). The FOMC comprises seven Federal governors, the President of the Federal Reserve Bank of New York, and four presidents from the remaining regional Federal Reserve banks. The FOMC may also alter the federal funds' target between the regular meetings on an ad hoc basis. The Feds can only consider the alteration if the Federal Reserve mandate that the Congress provides has a significant deviation from their forecasts. The Federal Reserve currently utilizes its new tools and communication practices launched in 2019 to conduct its monetary policy framework (Federal Reserve, 2020). The Feds uses its Fed Listens initiative to reach and consult a broader population and groups to gather appropriate feedback to

help them make the necessary adjustments to the monetary policies. The FOMC also has a revised Statement of Longer-Run Goals and monetary policy strategy to ensure efficiency in achieving their mandates from Congress.

Through effective attainment of the goals as the Congress provided, maximum employment, prices stability, and moderate long-term interests, the Federal Reserve will influence the interest rates of the banks and other financial institutions. The rates affect various companies' and organizations' business operations and their capital on different equipment. Also, individuals spend their income on various household items and investments according to the rates. The latter directly affects the economic stability of the country.

References Federal Reserve. (2020). Federal Reserve Board - Monetary Policy. Federalreserve.gov.

Retrieved 23 December 2020, from https://www.federalreserve.gov/monetarypolicy.htm.

Labonte, M. (2020). Monetary Policy and the Federal Reserve: Current Policy and Conditions.

Everycrsreport.com. Retrieved 23 December 2020, from https://www.everycrsreport.com/reports/RL30354.html#:~:text=Congress%20has %20delegated%20responsibility%20for%20monetary%20policy%20to%20the %20Fed,run%20goal%20of%202%25%20inflation%E2%80%94.

Rudebusch, G. D. (2019). Climate change and the Federal Reserve. FRBSF Economic Letter, 9. https://www.commoninterestsfinancial.com/wp-content/uploads/2019/03/FRBSFEconomic-Letter-3.25.19.pdf