Federal Reserve policies and economic impact

Economics

The Federal Reserve

The purpose of money is for a medium of exchange. It is the concept of economic supply that enables a person to obtain value in one way, and use that value for a different purpose. It can aid in the fulfillment of an immediate need or desire. It can also be saved for a future need or desire. It can offer a means for conveying a means of fulfillment to another, as in a gift, settlement, long-term contract, trust or inheritance. The use of money allows the processes that are involved in creating and using wealth. If one has to trade one's labor directly for what one would buy, much that we take for granted, in an advanced economy, becomes impossible (the Federal Reserve Board Its Purposes and Functions, 2005).

The Federal Reserve System is the Central Bank in the United States. The nation needs a money manager for the simple fact that money doesn't manage itself. Money and credit are the means of support of the economy. They make commerce possible, create jobs and grow businesses. As our nation's money manager, the Fed puts into place monetary policy to manage the flow of money and credit in the economy. If money and credit expand too quickly, businesses often can't produce enough goods and services to keep up. This causes prices to go up, which causes inflation. If the flow of money and credit contracts too much, spending and business activity will often dwindle, workers may lose their jobs, and a recession is the end result. As the nation's money manager, the Fed carries out monetary policy in an attempt to keep prices steady, workers employed, and factories productive (the Federal Reserve Board Its Purposes and Functions, 2005).

After doing down for a year and a half, economic activity in the United States has turned up in the second half of 2009, supported by an improvement in financial conditions, stimulus from monetary and fiscal policies, and a recovery in foreign economies. These factors, along with increased business and household confidence, are thought to likely to boost spending and help maintain the economic development. It is thought that the pace of the recovery will be slowed by people's desire to rebuild wealth, still-tight credit conditions facing some borrowers, and, despite some tentative signs of stabilization, continued weakness in labor markets. With considerable resource slack continuing to suppress cost pressures and with longer-term inflation expectations stable, it is thought that inflation subdued for some time (Monetary Policy Report to the Congress, 2010).