To define monetary policy, it refers to the financial policies adopted by the monetary authority of a country, such as the Federal Reserve, to achieve the country's economic goals. These goals are often a combination of economic growth, price stability and credit availability. Monetary policies are generally categorized as either expansionary or contractionary. While expansionary policy may seem more intuitive, both expansionary and contractionary policies are needed for the long-term health of an economy. For example, expansionary policy's low interest rates can result in harmful levels of inflation and undisciplined investments, forming economic bubbles. Unlike fiscal policy, which pertains to policies on government taxation and spending, monetary policy is independent from the political process. The Federal Reserve operates autonomously in order to shield it from short-term political pressures, such as a presidential election. This ensures that the Federal Reserve may make the best decisions for the long-term health of the economy. According to federalreserve.gov, "Congress has directed the Fed to conduct the nation's monetary policy to support three specific goals: 1. Maximum sustainable employment 2. Stable prices 3.Moderate long-term interest rates To achieve these goals, the Federal Reserve institutes three categories of monetary policy:What Is Monetary Policy?
What Are the Types of Monetary Policy?
What is the Objective of U.S. Monetary Policy?
Monetary Policy FAQs
Monetary policy refers to the financial policies adopted by the monetary authority of a country, such as the Federal Reserve, to achieve the country’s economic goals.
Monetary policies are generally categorized as either expansionary or contractionary.
Unlike fiscal policy, which pertains to policies on government taxation and spending, monetary policy is independent from the political process.
The goals of different monetary policies are often a combination of economic growth, price stability, and credit availability.
Congress has directed the Fed to achieve the following specific goals: maximize sustainable employment; stabilize prices; moderate long-term interest rates.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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