Question

What is the current macroeconomic situation in the U.S.? What should the Fed do about it? What monetary policy tools should the Fed use to achieve the result(s) you just recommended?

Answer 1

The US is currently growing at the rate of around 3% on a quarterly basis and fourth quarter growth has dipped compared to the third quarter. The stock markets in the US have als been volatile in the wake of the new presidency and the instability of it. Economic activity has been slow and also the dollar has weakened in the recent past. The Fed in such a situation should ideally use a mildly loose monetary policy to try and increase money supply and investment flow across the economy. This will also in turn increase the demand for the dollar and help the currency get stronger.The Fed can also use open market operations through open market purchases to stimulate growth. This will increase the money supply in the economy and raise economic growth. Thus the adoption of a loose monetary policy would be the way to go for the Fed to help improve the rate of economic growth.