Monetary Policy and the Fed
Read this chapter to understand in more detail the monetary policy tools, process, and impacts on the U.S. economy. Review specific monetary policies and their effects from our recent history.
Monetary Policy in the United States
Key Takeaways
- The Federal Reserve Board and the Federal Open Market Committee are among the most powerful institutions in the United States.
- The Fed's primary goal appears to be the control of inflation. Providing that inflation is under control, the Fed will act to close recessionary gaps.
- Expansionary policy, such as a
purchase of government securities by the Fed, tends to push bond prices
up and interest rates down, increasing investment and aggregate demand.
Contractionary policy, such as a sale of government securities by the
Fed, pushes bond prices down, interest rates up, investment down, and
aggregate demand shifts to the left.