Monetary Policies in the USA (2011-2020): ECO 202 Report

This report examines the monetary policies of the United States from 2011 to 2020, focusing on the actions of the Federal Reserve. It details the use of the federal funds rate and open market operations as primary tools, especially in response to the 2008 global economic crisis. The report discusses the Fed's efforts to maintain a low-interest-rate environment, the subsequent increases in the funds rate, and the implementation of quantitative easing. It analyzes the relationship between monetary policies and macroeconomic indicators such as unemployment and inflation, referencing the Phillips Curve. The report also highlights the Federal Reserve's goals of achieving maximum employment, stable prices, and a long-term fund rate, along with strategies like reverse repurchase agreements and controlling bank reserves. The report includes data visualizations of key economic indicators and references relevant sources.

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) .

In recent times. Federal Government is aimed at attaining the maximum
employment along with stable prices and long-term fund rate. The target inflation
goal is set at 2%.
Figure 4: Unemployment rate in the USA (2011- 2020)
Source: (Tradingeconomics.com, 2020)
Unemployment rate has faced a sharp decline following 2012 due to the combined
impact of the rising inflation rate and federal policies.

According to A.W. Phillips, unemployment and inflation are inversely related. The theory implies that
inflation mitigates the unemployment for a short -term. Nonetheless , unemployment rate in the USA
has been declining in response to lowering inflation rate.
Figure 5: Short run and long-run Philips Curve
Source: (Alisa, 2015)

Figure 6: Inflation rate in the USA (2011 – 2020)
Source: (Tradingeconomics.com, 2020)
• Instead of strict control over the inflation rate, its unstable condition is still
visible. In the USA. On this account, the Federal Bank has decided to focus
on the reverse repurchase agreements to achieve the stability in the interest
rate.
• Second, Fed is striving to control the abundant bank reserve to maintain a
stability between money demand and money supply.

Reference list
• Everycrsreport.com. (2020). Monetary Policy and the Federal Reserve: Current Policy and Conditions.
Everycrsreport.com. https://www.everycrsreport.com/reports/RL30354.html
• Federalreserve.gov. (2020). The Fed - Monetary Policy: Monetary Policy Report. Board of Governors of
the Federal Reserve System. https://www.federalreserve.gov/monetarypolicy/2020-02-mpr-part2.htm
• Tradingeconomics.com. (2020). United States Unemployment Rate | 1948-2020 Data | 2021-2022
Forecast | Calendar. Tradingeconomics.com.
https://tradingeconomics.com/united-states/unemployment-rate
• Tradingeconomics.com. (2020). United States Inflation Rate | 1914-2020 Data | 2021-2022 Forecast |
Calendar . Tradingeconomics.com. https://tradingeconomics.com/united-states/inflation-cpi
• Tradingeconomics.com. (2020). United States Fed Funds Rate | 1971-2020 Data | 2021-2022 Forecast
| Calendar . Tradingeconomics.com. https://tradingeconomics.com/united-states/interest-rate
• Alisa, M. (2015). The Relationship between Inflation and Unemployment: A Theoretical Discussion
about the Philips Curve. Journal of International Business and Economics, 3(2), 89-97.