Monetary Policy

Monetary Policy is a set of strategies used by central banks, like the Federal Reserve in the U.S., to control the money supply and influence overall economic conditions. The Fed’s goals include promoting economic growth, controlling inflation, and maximizing employment. Key tools to achieve these goals include adjusting interest rates, modifying bank reserve requirements, and buying or selling government securities.

For instance, during the COVID-19 pandemic, the Federal Reserve employed Quantitative Easing (QE) as a form of expansionary monetary policy. This involved purchasing large amounts of government bonds to increase liquidity within the economy, lower long-term interest rates, and encourage borrowing and spending, aiming to spur economic activity and stabilize financial markets in recession.