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Federal Reserve Chairman Jerome Powell announced in recent months that the Fed is committed to a...

Federal Reserve Chairman Jerome Powell announced in recent months that the Fed is committed to a near-zero rate of interest in the foreseeable future. Explaining why the Fed has chosen this path? Is this an example of expansionary or contractionary monetary policy? Explain the way this kind of policy will impact output, employment, and/or inflation

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Presently, we are facing the COVID-19 pandemic. it would decrease the aggregate demand significantly. The fall in the demand would cause the fall in the output and employment. The economy is heading towards the deep and prolonged recession. Fed now moving towards the near zero interest rate policy which can be achieved through the expansionary monetary policy.

The expansionary monetary policy would increase the money supply in economy where the it would help to reduce the interest rate. Fall in the interest rate will incentivise the investment and consumption expenditure. these consumption and investment expenditure will drive up the aggregate demand. Eventually, there will be a rise in the output and employment in the economy.

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