Fiscal and Monitory Policy

Fiscal and Monitory Policy

Monetary Policy

Monetary policy’s impact on the economy is described in the Federal Reserve System’s Purposes and Functions publication.

The Federal Reserve Act lays out the goals of monetary policy. It specifies that, in conducting monetary policy, the Federal Reserve System and the Federal Open Market Committee should seek “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

Using the tools of monetary policy, the Federal Reserve can affect the volume of money and credit and their price-interest rates. In this way, it influences employment, output, and the general level of prices.

The Federal Open Market Committee (FOMC), the Fed’s monetary policy-making body, issues a statement following each of its eight annual meetings. The statements describe economic conditions, monetary policy, and the actions the FOMC took with respect to the federal funds rate and the discount rate—the rate the Fed charges depository institutions for overnight borrowing .