Monetary Policy Paper.

Essay by jbrown2004University, Bachelor'sB-, September 2005

download word file, 3 pages 5.0

The goals of the U. S. Federal Reserve monetary policy include the promotion of sustainable economic growth, full employment, and stable prices.

The Federal Reserve's three main parts of monetary policy are open market operations, the discount rate and reserve requirements. Open market operations involve the buying and selling of U. S. government securities. The discount rate is the interest rate charged by Federal Reserve Banks to depository 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.

The U. S. economy definitely is out of the woods... The U. S. economy has shown impressive resilience to external shocks, including record global oil prices and terrorist outbreaks in London. In addition, the economy is displaying solid fundamentals that should carry us forward for some time to come. According to David Seiders, we are now pegging growth of real Gross Domestic Product (GDP) at 3.5%

for the second quarter and 3.8% for the third, on par with the solid pace of other recent quarters. GDP growth may slow a bit later this year and in 2006, as slack in labor and capital markets are gradually reduced, but skillful management of economic policy should help growth around a sustainable trend pace for an extended period. At this point, we feel no need to speculate about the timing of the next economic recession.

Is the Federal Reserve more concerned about high inflation or the possibility of a recession? While survey measures of near-term inflation expectations have edged up this year, surveys as well as readings from financial markets, suggest that expected inflation at longer horizons has remained contained. With financial conditions advantageous for households and firms, a solid economic expansion in train, and some upward pressures...