Tuesday, February 14, 2017

Monetary Policy and the Federal Reserve: Current Policy and Conditions

"Congress has delegated responsibility for monetary policy to the nation’s central bank, the Federal Reserve (the Fed), but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of “maximum employment, stable prices, and moderate longterm interest rates.” To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation

The Fed’s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in September 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time.

In December 2015, the Fed began raising interest rates and expects to gradually raise rates further..."
Federal Reserve and monetary policy

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