Monetary policy refers to a means by which monetary authorities of a nation controls the supply of money. Notably, the policy targets rate of interest with an aim of promoting economic stability and growth. U.S monetary policy, perhaps affects the entire decisions people make, either economic or financial. U.S has the largest economy in the world; hence its monetary policy affects financial and economic sectors of other countries.
Certainly, the main aim of monetary policy is to control the performance of the economy. It influences the economy by checking countries inflation, employment, and economic output. In U.S, monetary policy is carried out by the Federal Reserve System (Fed). The stakeholders of monetary policy influence demand by lowering and raising short-term interest rates.
Fed is an independent body, its structural features provide them with the mandate to conduct monetary policy. It is run by Governors and Reserve Bank Presidents, who are both appointed under different procedures. Furthermore, Fed is structured to meet its operating costs and maintain self-sufficiency. Fed is independent from the government but reports to congress.
FOMC (Federal Open Market Committee) takes the responsibility for making the monetary policy. Fed do not influence output, inflation and unemployment directly, it uses tool that affect indirectly. These tools include OMO (open market operation), discount rate, and bank reserve.
I support the use of monetary policy in influencing economic and financial decisions in U.S. Monetary policy, is always effective as compared to other policies of controlling supply and demand of money in the economy. Monetary policy is controlled and influenced by economists; hence it is free from political influence. Additionally, monetary policy gives room for analysis of economic goal; thereafter the right monetary policy tool can be conducted.
The monetary policy tools can easily be selected and used by fed in controlling the economy. Fed is tremendously powerful in influencing economic and financial market than other legislative entities. In most cases, monetary policy decisions are tremendously observed; U.S leads the way for other small economies to follow.
Monetary policy is effective because it allows short term economic and financial growth without destroying the long-term investment plan. Additionally, monetary policy can cause inflation but does not send the economy to excessive inflationary state as compared to fiscal policy.