Monetary Policy and the Federal Reserve: Current Policy and Conditions, Marc Labonte, Specialist in Macroeconomic Policy, March 31, 2010
“The Fed defines monetary policy as the actions it undertakes to influence the availability and cost of money and credit to promote the goals mandated by Congress: a stable price level and maximum sustainable economic growth. Since the expectations of households as consumers and businesses as the purchasers of capital goods exert an important influence on the major portion of spending in the United States, and these expectations are influenced in important ways by the actions of the Fed, a broader definition of monetary policy would include the directives, policies, statements, forecasts of the economy, and other actions by the Fed, especially those made by or associated with the chairman of its Board of Governors, the nations central banker…Thus, the Federal Reserve has a monetary policy function and a financial stability function. Its monetary policy function is one of aggregate demand management. The availability and cost of credit are used to manage aggregate demand in such a way as to promote a stable price level and through it maximum sustainable growth. Its second function is as lender of last resort to the nations financial system..”
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