Loose or Tight Monetary Policy:
- Federal fund rate is 1.5 % which is unusually low when compared
to Federal fund rate which was prevailing before 2007.
- Hence, we can conclude that monetary policy is still tight. But
it is moving towards Loose Phase.
Tools Federal Reserve using:
- Federal fund rate: Fed influence money supply
in economy by changing federal fund rate.
- Open market operation: Securities are
purchased and sold in open market to balance liquidity.
Direction of Policy
- Fed is moving towards the tight monetary policy. US economy
operating at close to full employment level and growth rate is over
2 %. Hence, it is projected that now Fed would be concentrating on
moderating inflationary pressure in long run.
- Hence, more tight monetary policy likely to come in near
future. It is estimated that Federal fund rate would come around 3
% by 2020.