A research whose objective is to investigate the current monetary policy and followed by the Federal banking system
In the year 2008 in the month of December, while a finance crisis was going on and the ‘great recession’, FED was forced to reduce the public kitty at a rate that ranged from 0%-0.25%. The rates were reduced to reach what is popularly known as zero lower bound. The rates remained at that lowered point until FED commenced increasing rates in December 2015.This was one among the many actions the FED took to gradually try and stiffen monetary policy (Harrison,p1).
The ongoing FED monetary policy is at a rate of 1.5%.Federal reserve hinted to the public that it would increase the rates to 2% in the next year. The rate is predicted to be 2.5% in 2019.The rates are very important in influencing the economic status of the United States (Harrison, p1).
The Fed’s board increased its funds quarterly rates to 1.5% in 2017 December .Previously it has increased it to 1.25% in June this year. FED utilizes competitive market activities to manage and manipulate monetary policies. The objective of FED in trading USA administrative securities is to impact the rates at which different banks are borrowing funds from each other. The FED’s board sets very specific objectives or a scope of targets for this rates. This is not the definite rate that is driven by the competitive market. (Harrison, p1).
Every bank is required to have a reserve fund but they rarely fulfill this requirement to run their day to day activities. In order for them to meet this need, they are likely to rent from one another. This gives the FED a chance to either increase interest rates or reduce them between different periods of time. Hence the FED has an opportunity to influence rates within the United States banks. This is done to stabilize the economy’s values and to control interest rates in the near future (Chaney ,p 1)
The FED tries to get a hand on interest rates and in turn affect spending that is associated with businesses and their capital meant for planting and apparatus; paying for durable goods and other household items and investing in the real estate sector. In addition, just as interest rates deviate between countries, as it is currently, it impacts the continuous circulation of capital that in turn sways the exchanging rates that occur among foreign nations and the us dollar hence affecting expenditure on exportation and importations. Through this routes the monetary policies stipulated by FED have the capacity to control accumulated expenditure related to short term goals. In terms of a longer period monetary policies as stipulated by FED, influences inflation. A very small and stabilized rate of inflation encourages fair and transparent pricing hence good decisions can be made about the economy (Timaros, p1).
The FED predicts that the components of the economy and the conditions that come with it will gradually change over time in a way that will favor and enable steady and stable increase in the federal fund and its rate; public fund rate is predicted to remain low in a long period of time. Even though rates are being increased by the FED, the Fed will try and strategize on maintaining a particular stimulating monetary policy as of now. In terms of the role they are supposed to play, FED considers that it has done its best to reduce unemployment to an acceptable rate (Chaney p1).
Works cited
Harrison .D. Economists See Few Monetary Policy Changes with Powell Leading. The Wall Street Journal, (Nov, 9, 2017).
Timaros. N. Fed Raises Rates, Stick To Forecast For 2018 Increases. WSJ (Dec, 13, 2017).
Chaney .S. Economists React to the December Fed decision: ‘we Wish Jay Powell the best of lack’WSJ (Dec, 14, 2017).
Retrieved from https://blogs.wsj.com/economics/2017/12/13/economists-react-to-the-december-fed-decision-we-wish-jay-powell-the-best-of-luck/
