Definition
In the United States, monetary policy is conducted primarily by the Federal Reserve through interest-rate targets, securities transactions, reserve tools, and communication.
Political Dictionary
Monetary Policy
Monetary policy is the management of money and credit conditions by a central bank.
Why It Matters
It influences inflation, employment, borrowing, investment, and financial conditions.
How It Works
The Federal Reserve adjusts policy tools to influence short-term interest rates and broader credit conditions.
History
Modern monetary policy developed with central banking and changed significantly after the Great Depression and inflation of the 1970s.
Example
The Fed may raise its target rate to slow inflation.
Common Misconceptions
- Congress directly sets the federal funds rate.
- Monetary policy controls every market interest rate exactly.
- Printing physical currency is the main modern policy tool.
Related Terms
Related Topics
See Also