U.S. Monetary Policy



Abstract

The purpose of this is study is to see the impact of U.S. monetary policy on the economy of the U.S. and how does it affect the business, investment and saving decision making of the nation. Further the study gives the reader an idea how the monetary policies affect the macroeconomics environment of the country and the fundamentals laws of economics.

U.S. Monetary Policy

Introduction

The financial crisis has rocked the global economy and the world is still in the phase of reconstructing it. Leading economies of the world gathered and trying to resolve the issues of the disaster. Economy of U.S. is in the stage of repair, the policy action taken by the fed are ultra easy. This ultra easy policy is suitable in this phase, but it will not always be suitable. The historical growth standards of U.S. economy are quite high, although it has achieved the growth of 3 percent in real GDP in 2012. (Bullard, 2012)

All types of financing, saving and investing decisions people make in a country, are affected by the monetary policy. The decisions from investing in a new business to the decision of buying a new house or a car all are dependent on this policy. People keep their eye on monetary policy before put their saving in a bank or to invest in a bond market or the stock market.

The US monetary policies are under a lot of criticism and scrutiny by the media, citizens and the world at large. The Federal Reserve System or “the fed" is responsible of making US monetary policies. It is the agency that is independent of Congressional appropriations and administrative control. That is why it makes the policies without any external influence. Economists have said that the global imbalances in trade and capital flows were at fault, with the global saving glut depressing global interest rates (Obstfeld and Rogoff 2010).

U.S. Monetary Policy

U.S Federal Reserve System drafts monetary policy to control short-term interest rates, money supply and credit to support national economic goals. Discount rate policy, open market operations, and reserve requirements are the major tools that fed keeps in mind before implementing a monetary policy. All the depository institutions keep some funds in reserve to meet unanticipated outflows. Banks can keep these reserves in the shape of cash or simply deposit them with the fed. Usually banks keep some extra funds with them in order to meet their daily requirements of overnight checks clearance and ATM restock. The intraday payment purpose need for reserves is much higher than the overnight demand, which has led the central banks to supply intraday loans at low-cost to the participants. This activity can be risky, and it exposes the central bank to credit risk and may create problems of high risk.

In US, the monetary policy is implemented by making alterations in the reserve supply in a way that the reserve of money is put to reach a monetary policy purpose. Monetary policy directly affects the macroeconomics ...