Monetary Policy Basics

An Aspect of the FED

What is it exactly?

Monetary Policy states how the Federal Reserve affects the money that is in the United States. All that happens to that money can change the economy and the interests.

The Policy's Goal and Tools

If done well, the success of the policy can be stable prices, great long lasting interest rates, and employment at the most potential.
It uses 3 tools: reserve requirements, open market operations, and discount rates. The reserve requirements are the amounts of money that banks have to keep without giving it out so they can use it in case of an emergency. The open operations are what makes the Monetary Policy so flexible. It takes the pressure of choices off the FED and instead leaves it out in the open. The discount rates are given by the Federal Reserve Banks on short-term loans.

The Federal Open Market Committee (FOMC)

The primary goal of the FOMC is to devise the nation's Monetary Policy. The seven members talk about the future of the U.S economy and its Monetary Policy. After a long process of sharing and discussion, the committee finally votes. Their final statement is sent to the New York FED's Domestic Trading Desk, then it's analyzed by the New York FED representatives. After that, a FED official sends it to the primary dealers.

The Policy- Cartooned