CRS – Monetary Policy and the Federal Reserve: Current Policy and Conditions, Marc Labonte, Specialist in Macroeconomic Policy, January 7, 2014.
“Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), but retains oversight responsibilities to ensure that the Fed is adhering to its statutory mandate of “maximum employment, stable prices, and moderate long-term interest rates.” It has defined stable prices as a longer-run goal of 2% inflation. The Fed’s responsibilities as the nation’s central bank fall into four main categories: monetary policy, provision of emergency liquidity through the lender of last resort function, supervision of certain types of banks and other financial firms for safety and soundness, and provision of payment system services to financial firms and the government. The Fed’s monetary policy function is one of aggregate demand management. 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 employment. Because the expectations of households as consumers and businesses as 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, who is the nation’s central banker. The Federal Open Market Committee (FOMC) meets periodically to consider whether to maintain or change the current stance of monetary policy.”