Submitted by: Submitted by onemansour
Views: 10
Words: 2330
Pages: 10
Category: Other Topics
Date Submitted: 05/09/2016 03:33 PM
FRBSF ECONOMIC LETTER
Number 2004-01, January 16, 2004
U.S. Monetary Policy: An Introduction
Part 1: How is the Fed structured and what are its policy tools?
Since 1999, when the first version of this Q&A on monetary policy appeared, several dramatic developments
have had an impact on the U.S. economy. On the negative side are the bursting stock market bubble, the recession,
the terrorist attacks of September 11, 2001, and, more recently, the emergence of the risk of deflation. On the
positive side have been continued high productivity growth and the resilience of the economy. In light of these
developments and their implications for monetary policy, it seemed appropriate to update and expand this Q&A
on the Federal Reserve’s tasks and how it carries them out.The revised text will appear in a pamphlet soon, and
we present it here in the FRBSF Economic Letter in four consecutive issues: (1) “How is the Federal Reserve
structured?” and “What are the tools of U.S. monetary policy?” (2) “What are the goals of U.S. monetary
policy?” (3) “How does monetary policy affect the U.S. economy?” and (4) “How does the Fed decide the
appropriate setting for the policy instrument?”
U.S. monetary policy affects all kinds of economic
and financial decisions people make in this country—whether to get a loan to buy a new house or
car or to start up a company, whether to expand a
business by investing in a new plant or equipment,
and whether to put savings in a bank, in bonds, or in
the stock market, for example. Furthermore, because
the U.S. is the largest economy in the world, its
monetary policy also has significant economic and
financial effects on other countries.
The object of monetary policy is to influence the
performance of the economy as reflected in such
factors as inflation, economic output, and employment. It works by affecting demand across the economy—that is, people’s and firms’ willingness to spend
on goods and services.
While most people...