Government Monetary Policies Theory 2022

MODULE 5- Milestone 3:
Government Monetary Policies
over 2011-current 2020

Federal Reserve, the central banks if the USA, conducts monetary policy
through federal funds rate and open market operations. Since the outbreak of
the global economic crisis 2008, Fed has been attaining to keep the federal
interest rate between 0% to 0.25% to boost the money supply.
Figure 1: Expansionary monetary
policy
Figure 2: Fed Funds rate (2011 -
2020)
Source: (Tradingeconomics.com,
2020)However, Fed started to increase the funds rate to mitigate the deficit in the
Federal Reserve. Interest rate has been reported to increase by 0.25 point for
each out of the nine times from 2015 to 2018 (Federalreserve.gov, 2020).
Meanwhile, it has again started falling from July 2019 as to maintain a
moderate long-term interest rate.

 Federal Bank operates Open Market Operation with the aim of
controlling the money supply through dynamic market operation and
defensive market operation . The USA Treasury Securities are the
fundamental tool used for open market operation.
 Federal Open Market committee (FOMC) decides the fund target .
Over 2009 -2014, FOMC undertook the quantitative easing (QE)
process to stimulate the Fed’s balance sheet by $4.5 trillion
(Everycrsreport.com, 2020) .