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Federal Reserve Tools
The Federal Reserve has certain actions it implements to help in the promotion of national economic goals and to influence the overall availability of money (Board of Governors of the Federal Reserve System, 2012). These actions make up what is known as monetary policy, which consists of three tools that the Federal Reserve uses to influence the economy with aims of pulling the economy out of recession. During a financial crisis such as that experienced in the United States in 2007-2008, The Federal Reserve was the only official body that had the power to make a real difference (Cecchetti, 2009). These three tools include open market operations, the discount rate, and reserve requirements (Board of Governors of the Federal Reserve System, 2012).
The main tool used by the Federal Reserve to influence monetary policy is open market operations. This tool entails the purchases and sales of federal agency and U.S. Treasury securities, with the objective of establishing a certain number of reserves at a particularly sought out price, which is known as the federal rates fund. This objective is a short-term...
The more recent objective of the Federal Reserve for open market operations has been long-term price stability and economic growth that is achievable and sustainable. This aim is continually assessed by the Committee through assessment of risks (Board of Governors of the Federal Reserve System, 2012).
Another tool utilized by The Federal Reserve to influence the economy and potentially improve the recession is the discount rate. This is the interest rate on loans from the Federal Reserve that commercial banks and other institutions are charged. The facility associated with the Federal Reserve through which lending occurs is known as the discount window. Regarding the discount window, there are three programs available to institutions including primary credit, secondary credit, and seasonal credit. Each of these types of credit have their own interest rate and all loans offered through the Federal Reserve Discount Window are secured loans. Primary credit is the main discount window program offered by the Federal Reserve, and it is always set above what the…
References
Board of Governors of the Federal Reserve System (2012). Federal open market committee. Retrieved 6 March 2012 from http://www.federalreserve.gov/monetarypolicy/fomc.htm.
Cecchetti, S.G. (2009). Crisis and responses: the Federal Reserve in the early stages of the financial crisis. Journal of Economic Perspectives, 23(1), 51-75.
Mankiw, G. (2007). How to avoid a recession? Let the Fed work. Economic View: The New York Times. Retrieved 6 March 2012 from http://www.nytimes.com/2007/12/23/business/23view.html.
The Federal reserve realized the big negative impact of MBS and announced a 600 billion program in November 2008 to purchase these securities and this helped to bring back some liquidity into the market. In March 2009, it added another $750 billion to bring the total to $1.25 trillion. The Fed has the power to create or print more money to increase money supply in the market and this is exactly
Federal Reserve Operations in the United States Functions of the Federal System in Control of Money Supply The discount rate, according to the federal system, is the interest rate, which the Federal Reserve imposes on the loans it gives to Federal Banks that are troubled and need financial support. Processing of lending to the banks is done through the 'discount window', which in most cases is controlled by the Reserve Banks. Factors influencing
Rather than propping up "bad blood" and allowing the "illusion" of wealth to continue to be fostered, the Federal Reserve should allow the market to flush out the "bad blood" and operate the way it is intended. Conclusion In conclusion, the good that the Federal Reserve does is to monitor economic policy, encourage maximum employment and long-term stability. The way it does so, however, especially in times of crisis such as
Federal Reserve Policies 2000- The first decade of the 21st century saw the U.S. economy on a peripatetic through tumultuous events, euphoric highs, and abysmal lows. The ten-year window highlighted three periods: 2000-2004, 2004-2007, and 2007-2010 in which the Federal Reserve actively utilized their policy levers to achieve their dual policy mandate of full employment and low inflation. The Fed's policy bag includes: the Fed funds rate, open market operations, discount
Federal Reserve The current state of the United States economy is not encouraging. Even though there has been false hope about it, the chances are that it will hardly last for long. The long-term trends that are negatively impacting the economy and financial system are showing no signs of reducing. As each day passes, the economic foundations of the country continue to crumble. The debt of the country has increased and
It is also worth noting that the Fed must understand how the relationship between its actions and the outcomes changes under different circumstances. For example, open market transactions put more money into the economy; they do not imply that spending will increase. Thus, more money in the economy will not necessarily lead to more growth, lower unemployment or higher inflation, even though the typical relationship is that they will. The