What is the monetary policy? It is a tool, administered by the United States Federal Reserve System, used to govern the supply and demand of money within the economy. The Federal Reserve System, established by an Act of Congress in 1913, consists of a seven member Board of Governors and twelve Federal Reserve District Banks. This policy is used to monitor economic conditions as a means to control certain factors, such as inflation, economic output, and employment. The monetary policy affects the individual, the business, as well as the federal institution. When evaluating the monetary policy for present day economy, the following should be considered: categorization of the state of the economy, concerns of high inflation or possible recession, and the direction of the economy as it relates to the monetary policy.
The United States economy is below optimal performance in that industry has experienced an increase in the production of goods and services but is reluctant to increase expenditures. The market value of goods and services produced are increasing but at a slower rate than the actual production of goods and services. This gives indication of a decreasing inflation rate. Long term and short-term interest rates have started to decline resulting in an increase in mortgage and home equity loans. The economy has been affected by the war in Iraq by the increase in crude, fuel, and heating oil prices. The increase in these prices has caused the consumer to become weary of the economic conditions due to the inflated expenses of day-to-day activities. Additionally, financial institutions decided to invest more conservatively in low to moderate risk funds. This action decreased investment losses for the financial institutions. Swift resolution in the war with Iraq caused the economic system to bounce back reflecting lower prices for crude oil and less risk in securities.
The Federal Reserve is not concerned about high inflation or the possibility of a recession.
