What is Federal Reserve Monetary Policy

What Series 

The Federal Reserve uses monetary policy tools to influence economic conditions and achieve its dual mandate of maximum employment and stable prices.

Main lever is federal funds rate that impacts borrowing costs

The Fed's main monetary policy lever is adjusting the federal funds rate, which is the interest rate banks charge each other for overnight lending. Lower rates stimulate the economy while higher rates slow it down.

Also uses securities buying/selling to inject/drain bank reserves

The Fed also uses open market operations, buying and selling securities to inject or drain money from the banking system. Purchases boost the money supply and stimulate the economy. Sales do the opposite..

Unconventional quantitative easing used when rates were near zero

Quantitative easing was an unconventional expansionary policy used after the 2008 crisis with rates stuck near zero. The Fed purchased bonds to lower long-term rates.

Rate changes cascade, influencing mortgages, spending, more 

Changes to the Fed's policy rate cascade through the economy, impacting mortgage rates, other consumer borrowing costs, asset valuations, exchange rates and more.

Lower rates encourage growth; higher rates slow things down

Lower rates boost lending, consumer spending and business investment, while higher rates discourage borrowing and growth. This allows the Fed to influence employment and inflation trends.

Fed adapts policy approach over time to meet new conditions

The Fed continually adapts its policy approach over time, using forward guidance, average inflation targeting and other innovations to meet evolving conditions.

Good policy requires flexibility, timing, proportionality

Monetary policy efficacy depends on flexibility, timing, proportionality, communication and avoiding unintended side effects like financial instability.

Transparency and communication support credibility

The Fed follows a meticulous, data-driven process for policy decisions, with robust analysis, debate, voting and transparency. This supports credibility.