Visit the Board of Governors of the Federal Reserve website ( http://www.federal
ID: 1163824 • Letter: V
Question
Visit the Board of Governors of the Federal Reserve website ( http://www.federalreserve.gov/monetarypolicy/default.htm ) and read the latest Federal Open Market Committee (FOMC) statement which discusses the current type of monetary policy which the Federal Reserve is implementing:
Is the Federal Reserve implementing expansionary or contractionary monetary policy? Why?
How do you think that the Federal Reserve's changes to monetary policy will impact the condition of the U.S. economy? Why?
Thank you!
Explanation / Answer
Answer :
An expansionary monetary policy increases the money supply in the market. Whereas, a contradictionary monetray policy restrict the money supply.
As given in the recent statement, that the committee would stick at the existing rate of federal funds and also would reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, it has been understood that the committee is trying to contradict the maarket.In other words, the ploicies are contradictionary monetray policy that restrict and control money supply in the market.
With Inflation is anticipated to be remained near its recent low level in the near term, the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate. Thus, the Committee continues to monitor inflation developments closely. To which, it has adopted such measures to restrict money supply to check the inflation.
The change in monetray policy has been anticipated to reduce free supply of money in the market (as with reinvestment of prinicipal amounts in agency mortgage-backed securities) which will more improve the condition of energy prices and labor market and expected rise in inflation would be checked.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.