Federal Reserve and Monetary Policy

The Federal Reserve and Monetary Policy

Macroeconomics

The Federal Reserve and Monetary Policy

Throughout the last twenty years the Federal Reserve has implemented a few different policies. Dating back to about 1980, there have been many affects due to changes in the policies that have been presented over time. Interest rates and the required reserve have had simple fluctuations as a result of these policies as well. The U.S. GDP can also be affected as a result of these policies, and finally an overall analysis on how I feel these policies were successful.

Interest rates and required reserves have been one main factor that has been affected by these different policies. For instance, in 1980 Congress passed the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) (Liberty Fund, Inc., 2008). During this time interest rates were extremely high, but by the early 2000s they had decreased rapidly (Pearson Education, 2014). More recently we have seen interest rates were meant to be kept low ever since Greenspan took over as chairman in 1987 when Regan was elected (Liberty Fund, Inc., 2008). Greenspan was invested in the monetary policy and wanted to enact this policy to its fullest potential. Short-term interest rates fell from 6–9 percent to 1–4 percent, while long-term rates decline from 8–10 percent to 4–6 percent (Liberty Fund, Inc., 2008).

As for the required reserves over the last twenty years, this has obviously continued to increase due to the mergers in big banking. Each banks needs to be able to have the money to be able to pay out to each customer for that matter. Since more individuals continue to save money over the years, this means that the Fed needs more required reserves to back up its debits. If a bank does not have the required reserves when money is supposed to be credited to the customer, then the bank is not meeting requirements. Many different banks have been shut down over the last twenty years and declared...