Monetary Policy For Economic Growth - 2011 Words

It has been almost 10 years since the last time the Fed has increased interest rates, held back by a fear of an unstable economy. There is a worry that increasing the interest rate by just a quarter of a percent could tip financial markets into another crisis. However, recent data portrays the economy as being the exact opposite of unstable. The unemployment rate is now at a new multi-year low, wages have increased and have been increasing over the year, and now the most recent payroll report shows an increase of 271,000 jobs (NYTimes). Under these conditions, one can surely assume that a near-term rise in interest rates is inevitable. If the Federal Reserve were to increase interest rates, how will this affect the economy in both the†¦show more content†¦Established in 1913, Congress stated the statutory objectives for monetary policy as achieving maximum employment, stable prices, and moderate long-term interest rates in the Federal Reserve Act (FRB). How the Federal Reser ve attempts to reach these objectives will be discussed throughout the paper. The paper will be broken up into sections leading to the end result of our task. In the first section of this paper, we will discuss why achieving the statutory objectives are important and how the Federal Reserve interprets them. We will then move to how the Fed reaches its’ objectives by discussing the tools that the Fed could use. Then, we will analyze certain economic indicators that aid the Federal Reserve in its’ decision making. Followed by, what negative impact can monetary policy have on the economy? We will conclude this paper with the theory of long-term growth achievement without a rise in inflation. We are going to aim our focus on two basic goals of monetary policy: to promote maximum employment as well as stable prices. What does this mean exactly? First we need to understand that in the long run, the goods and services the economy produces, known as GDP, as well as the jobs created, are not as influenced by monetary policy in comparison to the short term. In the short term however, the Fed can play a major role. Let’s say through lower levels of demand, a recession occurs. The Federal Reserve