Federal Reserve Paper Eco 212

884 words - 4 pages

Federal Reserve Paper
ECO/212

This paper is for reference material only

Federal Reserve Paper
Founded by Congress in 1913 to provide America with a safer, flexible, and stable monetary system, the Federal Reserve System’s role is to conduct monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system, and provide financial services (Board of Governors of the Federal Reserve System, 2009). From the economic decline in 2007, the Federal Reserve Board has enacted economic policies getting the nation back on track. This essay will explore using the website, to define the purpose and function of money, explain how the central bank manages ...view middle of the document...

If the Fed raises, their requirement, less money is available for loans. The Federal Reserve can change the interest (discount) rates on money loaned to banks. If interest rates are high, borrowing money costs more, discouraging both lenders and borrowers. Third, open market operations are the Federal Reserve’s principle tool for implementing monetary policy by controlling the short-term interest rate and supply of money in the economy. This is accomplished by buying and selling government securities and other financial instruments such as gold. The open market operation can also control inflation by selling treasury bills to commercial banks, blocking money loaned out to the public.
The recent monetary policy of the United States Federal Reserve is to keep target range for federal funds rate at zero to ¼ percent. In an announcement on June 22, 2011, the committee forecasted that there would still be slow growth and to promote the recovery by keeping inflation at levels consistent with its mandate. The committee also will complete the purchases of $600 billion of longer term Treasury securities and will maintain its existing policy of reinvesting principal payments from its securities holdings (Board of Governors of the Federal Reserve System, 2011) basically the board is doing what it can to keep inflation down and to give the economy a chance to grow. Recently, the Federal Reserve Board completed its bond buying program known as QE2 and has not made a move to raise rates. Although there are complaints that the Federal Reserve Board is not acting aggressively enough, their stance shows that they are concerned about the long-term effects and will wait until a significant recovery before deciding n raising rates...

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