What is Monetary Policy
Definition of 'Monetary Policy'The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).
As said in Investopedia In the United States, the Federal Reserve is in charge of monetary policy. Monetary policy is one of the ways that the U.S. government attempts to control the economy. If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow. In general, the U.S. sets inflation targets that are meant to maintain a steady inflation of 2% to 3%.
Tools of Monetary Policy
Open market Operations
Fed doesn’t decide on its own which securities dealers it will do business with instead business with the primary dealers compete on the basis of price.
Its the interest rate changed by the federal system to depositary institutions on short term loans.
Reserve requirements are the portions of deposits that banks must maintain either in their vaults or on deposit at a Federal Reserve Bank.