{ "id": "RL30354", "type": "CRS Report", "typeId": "REPORTS", "number": "RL30354", "active": true, "source": "EveryCRSReport.com, CRSReports.Congress.gov, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 616200, "date": "2020-02-06", "retrieved": "2020-02-07T23:03:04.409811", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), the nation\u2019s central bank, but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation.\nThe Fed\u2019s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the 2007-2009 financial crisis and its aftermath. Starting in December 2015, the Fed began raising interest rates. In total, the Fed raised rates nine times between 2015 and 2018, by 0.25 percentage points each time. In light of increased economic uncertainty, the Fed then reduced interest rates by 0.25 percentage points in a series of steps beginning in July 2019.\nThe Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. \nThe Fed\u2019s relative independence from Congress and the Administration has been justified by many economists on the grounds that it reduces political pressure to make monetary policy decisions that are inconsistent with a long-term focus on stable inflation. But independence reduces accountability to Congress and the Administration, and recent criticism of the Fed by the President has raised the question about the proper balance between the two.\nWhile the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed\u2019s balance sheet was $4.5 trillion\u2014five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools\u2014by paying banks interest on reserves held at the Fed and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility. In January 2019, the Fed announced that it would continue using these tools to set interest rates permanently. In August 2019, it stopped reducing the balance sheet from its current size of $3.8 trillion. However, the remaining MBS on its balance sheet would gradually be replaced with Treasury securities as they mature. In response to turmoil in the repo market in September 2019, the Fed began intervening in the repo market and began expanding its balance sheet again in October 2019.\nWith regard to its mandate, the Fed believes that unemployment is currently lower than the rate that it considers consistent with maximum employment, and inflation is running slightly below the Fed\u2019s 2% goal by the Fed\u2019s preferred measure. Monetary policy is still considered expansionary, which is unusual at this stage of an expansion, and is being coupled with a stimulative fiscal policy (larger structural budget deficit). The decision to cut rates in 2019 was controversial. The Fed justified the cut on the grounds that risks of a growth slowdown had intensified and inflation was still below 2%. But it also argued that the economy was still strong, and some of the risks to the economy, such as higher tariffs, had not yet materialized at the time of the decision. Overly stimulative monetary policy in a strong expansion risks economic overheating, high inflation, or asset bubbles.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/RL30354", "sha1": "a60cbcd459e4dad34d1f634a9dda76eeb18eb6da", "filename": "files/20200206_RL30354_a60cbcd459e4dad34d1f634a9dda76eeb18eb6da.html", "images": { "/products/Getimages/?directory=RL/html/RL30354_files&id=/0.png": "files/20200206_RL30354_images_52842ce0150e3dbbf507f1836ab579aa9b510cd0.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/RL30354", "sha1": "d2620ae4bc0820cb5e4fbe4987bf64bc6e46e87d", "filename": "files/20200206_RL30354_d2620ae4bc0820cb5e4fbe4987bf64bc6e46e87d.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4891, "name": "Federal Reserve & Monetary Policy" } ] }, { "source": "EveryCRSReport.com", "id": 604363, "date": "2019-09-04", "retrieved": "2019-09-04T22:09:41.826623", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), the nation\u2019s central bank, but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation.\nThe Fed\u2019s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. Starting in December 2015, the Fed began raising interest rates. In total, the Fed raised rates nine times between 2015 and 2018, by 0.25 percentage points each time. In light of increased economic uncertainty, the Fed then reduced interest rates by 0.25 percentage points in July 2019.\nThe Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. \nThe Fed\u2019s relative independence from Congress and the Administration has been justified by many economists on the grounds that it reduces political pressure to make monetary policy decisions that are inconsistent with a long-term focus on stable inflation. But independence reduces accountability to Congress and the Administration, and recent criticism of the Fed by the President has raised the question about the proper balance between the two.\nWhile the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed\u2019s balance sheet was $4.5 trillion\u2014five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools\u2014by paying banks interest on reserves held at the Fed and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility. In January 2019, the Fed announced that it would continue using these tools to set interest rates permanently. In August 2019, it stopped reducing the balance sheet from its current size of $3.8 trillion. However, the remaining MBS on its balance sheet would gradually be replaced with Treasury securities as they mature.\nWith regard to its mandate, the Fed believes that unemployment is currently lower than the rate that it considers consistent with maximum employment, and inflation is close to the Fed\u2019s 2% goal by the Fed\u2019s preferred measure. Even after recent rate increases, monetary policy is still considered expansionary. This monetary policy stance is unusually stimulative compared with policy in this stage of previous expansions, and is being coupled with a stimulative fiscal policy (larger structural budget deficit). The decision to cut rates in July was controversial. The Fed justified the cut on the grounds that risks of a growth slowdown have intensified and inflation is still below 2%. But it also argued that the economy was still strong, and some of the risks to the economy, such as higher tariffs, had not yet materialized at the time of the decision. Overly stimulative monetary policy in a strong expansion risks economic overheating, high inflation, or asset bubbles.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/RL30354", "sha1": "db45c517dc6ca898e98495a39f4120445c507b47", "filename": "files/20190904_RL30354_db45c517dc6ca898e98495a39f4120445c507b47.html", "images": { "/products/Getimages/?directory=RL/html/RL30354_files&id=/0.png": "files/20190904_RL30354_images_52842ce0150e3dbbf507f1836ab579aa9b510cd0.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/RL30354", "sha1": "1b3665ffb1bddc0226215678009bc470f343e866", "filename": "files/20190904_RL30354_1b3665ffb1bddc0226215678009bc470f343e866.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4891, "name": "Federal Reserve & Monetary Policy" } ] }, { "source": "EveryCRSReport.com", "id": 591909, "date": "2019-02-22", "retrieved": "2019-04-17T14:15:37.907350", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), the nation\u2019s central bank, but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation.\nThe Fed\u2019s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. Starting in December 2015, the Fed has been raising interest rates and expects to gradually raise rates further. The Fed raised rates once in 2016, three times in 2017, and four times in 2018, by 0.25 percentage points each time. In light of increased economic uncertainty and financial volatility, the Fed announced in January 2019 that it would be \u201cpatient\u201d before raising rates again.\nThe Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. \nThe Fed\u2019s relative independence from Congress and the Administration has been justified by many economists on the grounds that it reduces political pressure to make monetary policy decisions that are inconsistent with a long-term focus on stable inflation. But independence reduces accountability to Congress and the Administration, and recent legislation and criticism of the Fed by the President has raised the question about the proper balance between the two.\nWhile the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed\u2019s balance sheet was $4.5 trillion\u2014five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools\u2014by paying banks interest on reserves held at the Fed and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility. In January 2019, the Fed announced that it would continue using these tools to set interest rates permanently, in which case the balance sheet may not get much smaller than its current size of $4 trillion. \nWith regard to its mandate, the Fed believes that unemployment is currently lower than the rate that it considers consistent with maximum employment, and inflation is close to the Fed\u2019s 2% goal by the Fed\u2019s preferred measure. Even after recent rate increases, monetary policy is still considered expansionary. This monetary policy stance is unusually stimulative compared with policy in this stage of previous expansions, and is being coupled with a stimulative fiscal policy (larger structural budget deficit). Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly at full employment will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/RL30354", "sha1": "85387a3432aa660bdb34c08f8c59fab69ee3a0ec", "filename": "files/20190222_RL30354_85387a3432aa660bdb34c08f8c59fab69ee3a0ec.html", "images": { "/products/Getimages/?directory=RL/html/RL30354_files&id=/0.png": "files/20190222_RL30354_images_52842ce0150e3dbbf507f1836ab579aa9b510cd0.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/RL30354", "sha1": "83506614b98d49e54a99104a733bb1efb47225b3", "filename": "files/20190222_RL30354_83506614b98d49e54a99104a733bb1efb47225b3.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4891, "name": "Federal Reserve & Monetary Policy" } ] }, { "source_dir": "crsreports.congress.gov", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "retrieved": "2020-09-07T12:24:17.893469", "id": "RL30354_105_2019-01-18", "formats": [ { "filename": "files/2019-01-18_RL30354_011feb69364db342308030c025d0a82aceb25bdc.pdf", "format": "PDF", "url": "https://crsreports.congress.gov/product/pdf/RL/RL30354/105", "sha1": "011feb69364db342308030c025d0a82aceb25bdc" }, { "format": "HTML", "filename": "files/2019-01-18_RL30354_011feb69364db342308030c025d0a82aceb25bdc.html" } ], "date": "2019-01-18", "summary": null, "source": "CRSReports.Congress.gov", "typeId": "RL", "active": true, "sourceLink": "https://crsreports.congress.gov/product/details?prodcode=RL30354", "type": "CRS Report" }, { "source": "EveryCRSReport.com", "id": 577549, "date": "2018-01-09", "retrieved": "2018-01-16T23:12:09.601580", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "Congress has delegated responsibility for monetary policy to the nation\u2019s central bank, the Federal Reserve (the Fed), but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation.\nThe Fed\u2019s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in September 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. Starting in December 2015, the Fed has been raising interest rates and expects to gradually raise rates further. \nThe Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. \nWhile the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed\u2019s balance sheet was $4.5 trillion\u2014five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size\u2014a process that is expected to last for several years. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools\u2014by raising the rate of interest paid to banks on reserves and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility.\nThe Fed \u201cexpects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.\u201d Thus, although rates are being raised, the Fed plans to maintain an unusually stimulative monetary policy for the time being. In terms of its mandate, the Fed believes that unemployment has reached the rate that it considers consistent with maximum employment, but inflation has generally remained below the Fed\u2019s 2% goal since 2013 by the Fed\u2019s preferred measure. Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly at full employment will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/RL30354", "sha1": "45a47bc063382ffa81795fefb8fb48e8237c5e72", "filename": "files/20180109_RL30354_45a47bc063382ffa81795fefb8fb48e8237c5e72.html", "images": { "/products/Getimages/?directory=RL/html/RL30354_files&id=/0.png": "files/20180109_RL30354_images_52842ce0150e3dbbf507f1836ab579aa9b510cd0.png" } }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/RL30354", "sha1": "4cea9a7fe92d7635299be59847ed658c74a5ca7c", "filename": "files/20180109_RL30354_4cea9a7fe92d7635299be59847ed658c74a5ca7c.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4891, "name": "Federal Reserve & Monetary Policy" } ] }, { "source": "EveryCRSReport.com", "id": 462130, "date": "2017-06-21", "retrieved": "2017-08-22T14:14:41.228397", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "Congress has delegated responsibility for monetary policy to the nation\u2019s central bank, the Federal Reserve (the Fed), but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation.\nThe Fed\u2019s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in September 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. In December 2015, the Fed began raising interest rates and expects to gradually raise rates further. \nThe Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, as is the case now, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. \nWhile the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed\u2019s balance sheet was $4.5 trillion\u2014five times its pre-crisis size. Although QE has ended, the Fed has maintained the balance sheet at its current level since, with the intention of beginning later this year to gradually reduce it to a more normal size. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools\u2014by raising the rate of interest paid to banks on reserves and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility.\nThe Fed \u201cexpects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.\u201d Thus, although rates are being raised, the Fed plans to maintain an unusually stimulative monetary policy for the time being. In terms of its mandate, the Fed believes that unemployment has reached the rate that it considers consistent with maximum employment (although other labor market indicators suggest some slack remains), but inflation has generally remained below the Fed\u2019s 2% goal since 2013 by the Fed\u2019s preferred measure. Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/RL30354", "sha1": "01a12ae4a78267e4da707b1bb20a07c9caf74538", "filename": "files/20170621_RL30354_01a12ae4a78267e4da707b1bb20a07c9caf74538.html", "images": {} }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/RL30354", "sha1": "200da3fa7a0852740bd9e941724bb399a85db5ed", "filename": "files/20170621_RL30354_200da3fa7a0852740bd9e941724bb399a85db5ed.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4891, "name": "Federal Reserve & Monetary Policy" } ] }, { "source": "EveryCRSReport.com", "id": 458829, "date": "2017-02-07", "retrieved": "2017-02-10T18:21:25.318068", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "Congress has delegated responsibility for monetary policy to the nation\u2019s central bank, the Federal Reserve (the Fed), but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation.\nThe Fed\u2019s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in September 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time. In December 2015, the Fed began raising interest rates and expects to gradually raise rates further. \nThe Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, as is the case now, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. \nWhile the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed\u2019s balance sheet was $4.5 trillion\u2014five times its pre-crisis size. Although QE has ended, the Fed has maintained the balance sheet at its current level for the time being, with the intention of reducing it to a more normal size in the long run. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools\u2014by raising the rate of interest paid to banks on reserves and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility.\nThe Fed \u201canticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.\u201d Thus, although rates are being raised, the Fed plans to maintain an unusually stimulative monetary policy for the time being. In terms of its mandate, the Fed believes that unemployment has reached the rate that it considers consistent with maximum employment (although other labor market indicators suggest some slack remains), but inflation has remained below the Fed\u2019s 2% goal since 2013 by the Fed\u2019s preferred measure. Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/RL30354", "sha1": "1dc75b54b09b4bf7dbdba557b0529ad2f673fdba", "filename": "files/20170207_RL30354_1dc75b54b09b4bf7dbdba557b0529ad2f673fdba.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/RL30354", "sha1": "df0e320659427f1950f991e7dbd150a1fcd27e95", "filename": "files/20170207_RL30354_df0e320659427f1950f991e7dbd150a1fcd27e95.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 4891, "name": "Federal Reserve & Monetary Policy" } ] }, { "source": "EveryCRSReport.com", "id": 449267, "date": "2016-01-28", "retrieved": "2016-04-06T17:23:25.045352", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "The Federal Reserve (the Fed) defines monetary policy as its actions to influence the availability and cost of money and credit. Because the expectations of market participants play an important role in determining prices and economic growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence future perceptions. Congress has delegated responsibility for monetary policy to the Fed but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation.\nNormally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in September 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time. In December 2015, the Fed began raising interest rates and expects to gradually raise rates further. The Fed \u201canticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.\u201d Thus, although rates are being raised, the Fed plans to maintain an unusually stimulative monetary policy.\nThe Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. When interest rates diverge between countries, as is the case now, it causes capital flows that affect the exchange rate, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. \nWhile the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed\u2019s balance sheet was $4.5 trillion\u2014five times its pre-crisis size. Although QE has ended, the Fed has announced that it intends to maintain the balance sheet at its current level for the time being. In September 2014, the Fed announced a framework for normalizing monetary policy after QE, explaining that it will raise interest rates in the presence of a large balance sheet mainly by raising the rate of interest paid to banks on reserves and by engaging in reverse repurchase agreements (reverse repos).\nThe Fed projects that unemployment will reach the rate that it considers consistent with maximum employment in 2016 (although other labor market indicators suggest more slack), although inflation has remained below the Fed\u2019s 2% goal since 2013 by the Fed\u2019s preferred measure. Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.\nFor an overview of legislation, see CRS Report R44273, Federal Reserve: Legislation in the 114th Congress, by Marc Labonte.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/RL30354", "sha1": "604f38d792b1f344c012deaa8013262415d0f06d", "filename": "files/20160128_RL30354_604f38d792b1f344c012deaa8013262415d0f06d.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/RL30354", "sha1": "f370e240121d1fac4601a19b6df15623c54a2056", "filename": "files/20160128_RL30354_f370e240121d1fac4601a19b6df15623c54a2056.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 237, "name": "Monetary Policy and the Federal Reserve" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc700685/", "id": "RL30354_2015Jun18", "date": "2015-06-18", "retrieved": "2015-08-27T16:20:31", "title": "Monetary Policy and the Federal Reserve: Current Policy and Issues for Congress", "summary": "This report provides an overview of monetary policy and recent developments. 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The Federal Reserve (the Fed) defines monetary policy as the actions it undertakes to influence the availability and cost of money and credit. Because the expectations of market participants play an important role in determining prices and growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence how the future is perceived. In addition, the Fed acts as a \"lender of last resort\" to the nation's financial system, meaning that it ensures continued smooth functioning of financial intermediation by providing financial markets with adequate liquidity.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20130212_RL30354_c4b3670ad48181e09e6e759afcad1dd087bb84d4.pdf" }, { "format": "HTML", "filename": "files/20130212_RL30354_c4b3670ad48181e09e6e759afcad1dd087bb84d4.html" } ], "topics": [ { "source": "LIV", "id": "Economic policy", "name": "Economic policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Monetary policy", "name": "Monetary policy" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc820753/", "id": "RL30354_2012Aug03", "date": "2012-08-03", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20120803_RL30354_4379f5cf778df2b06207d6dc0eb4dd2f72068675.pdf" }, { "format": "HTML", "filename": "files/20120803_RL30354_4379f5cf778df2b06207d6dc0eb4dd2f72068675.html" } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc96734/", "id": "RL30354_2012Jul06", "date": "2012-07-06", "retrieved": "2012-08-07T13:52:45", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "This report discusses how the Federal Reserve (Fed) handles monetary policy, including background information about the execution of monetary policy, the recent and current stance of monetary policy, and current legislation and Congressional oversight that would affect the Fed's practices.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20120706_RL30354_8476789561e242bc51e0bd98aab9ae9ecee0b312.pdf" }, { "format": "HTML", "filename": "files/20120706_RL30354_8476789561e242bc51e0bd98aab9ae9ecee0b312.html" } ], "topics": [ { "source": "LIV", "id": "Economic policy", "name": "Economic policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Monetary policy", "name": "Monetary policy" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc87249/", "id": "RL30354_2012Jan30", "date": "2012-01-30", "retrieved": "2012-07-03T07:51:21", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "The Federal Reserve (Fed) defines monetary policy as the actions it undertakes to influence the availability and cost of money and credit. Since the expectations of market participants play an important role in determining prices and growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence how the future is \r\nperceived. In addition, the Fed acts as a \u201clender of last resort\u201d to the nation's financial system, meaning that it ensures continued smooth functioning of financial intermediation by providing financial markets with adequate liquidity. This role has become of great importance following the onset of the recent financial crisis. Congress has delegated responsibility for monetary policy to the Fed, but retains oversight responsibilities to ensure that the Fed is adhering to its statutory mandate \u201cmaximum employment, stable prices, and moderate long-term interest rates.\u201d This report looks at the background and influences of current legislation that would affect the Fed's practices.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20120130_RL30354_4dbc4c2707a7748ba6671b63d5bc76ec305adb44.pdf" }, { "format": "HTML", "filename": "files/20120130_RL30354_4dbc4c2707a7748ba6671b63d5bc76ec305adb44.html" } ], "topics": [ { "source": "LIV", "id": "Economic policy", "name": "Economic policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Monetary policy", "name": "Monetary policy" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc808142/", "id": "RL30354_2011Jun15", "date": "2011-06-15", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20110615_RL30354_2d8bd4dd9bb763ab3ed968c77922debbfea61cfc.pdf" }, { "format": "HTML", "filename": "files/20110615_RL30354_2d8bd4dd9bb763ab3ed968c77922debbfea61cfc.html" } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc503706/", "id": "RL30354_2010Mar31", "date": "2010-03-31", "retrieved": "2015-04-30T17:37:21", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "This report discusses two of the four major responsibilities of the Federal Reserve (Fed) as the nation's central bank: execution of monetary policy and ensuring financial stability through the lender of last resort function. This report provides an overview of these mandates and activities, recent developments, and the role of Congressional oversight.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20100331_RL30354_4543684480fc1e1e2fb4610263ac0682a01b20af.pdf" }, { "format": "HTML", "filename": "files/20100331_RL30354_4543684480fc1e1e2fb4610263ac0682a01b20af.html" } ], "topics": [ { "source": "LIV", "id": "Economic policy", "name": "Economic policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Monetary policy", "name": "Monetary policy" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc815604/", "id": "RL30354_2008Dec16", "date": "2008-12-16", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20081216_RL30354_9d1194791750400f6c04598ddcf7892df4973835.pdf" }, { "format": "HTML", "filename": "files/20081216_RL30354_9d1194791750400f6c04598ddcf7892df4973835.html" } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc815132/", "id": "RL30354_2008Oct29", "date": "2008-10-29", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20081029_RL30354_1ca3ec66162a984a52858ff932907626294eae2f.pdf" }, { "format": "HTML", "filename": "files/20081029_RL30354_1ca3ec66162a984a52858ff932907626294eae2f.html" } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc770554/", "id": "RL30354_2008Aug22", "date": "2008-08-22", "retrieved": "2015-11-04T09:58:14", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "This report discusses two of the four major responsibilities of the Federal Reserve (Fed) as the nation's central bank: execution of monetary policy and ensuring financial stability through the lender of last resort function. This report provides an overview of these mandates and activities, recent developments, and the role of Congressional oversight.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20080822_RL30354_21a5a0b9c9343c3a5ec70d4fe7dc0a9c64a12c43.pdf" }, { "format": "HTML", "filename": "files/20080822_RL30354_21a5a0b9c9343c3a5ec70d4fe7dc0a9c64a12c43.html" } ], "topics": [ { "source": "LIV", "id": "Economic policy", "name": "Economic policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Monetary policy", "name": "Monetary policy" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc821636/", "id": "RL30354_2008Apr30", "date": "2008-04-30", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": "Monetary policy can be defined as any policy relating to the supply of money. Since the agency concerned with the supply of money is the nation\u2019s central bank, the Federal Reserve, monetary policy can also be defined in terms of the directives, policies, statements, and actions of the Federal Reserve, particularly those from its Board of Governors that have an effect on national spending. This report discusses current issues regarding monetary policy.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20080430_RL30354_a7edee3304064767ba04f9c9124da9604f8a87f0.pdf" }, { "format": "HTML", "filename": "files/20080430_RL30354_a7edee3304064767ba04f9c9124da9604f8a87f0.html" } ], "topics": [ { "source": "LIV", "id": "Economic policy", "name": "Economic policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Monetary policy", "name": "Monetary policy" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc811200/", "id": "RL30354_2007Nov23", "date": "2007-11-23", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy and the Federal Reserve: Current Policy and Conditions", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20071123_RL30354_5240b8cfe9e459271da8e036872c2a17a23c2ce8.pdf" }, { "format": "HTML", "filename": "files/20071123_RL30354_5240b8cfe9e459271da8e036872c2a17a23c2ce8.html" } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc810759/", "id": "RL30354_2006Nov22", "date": "2006-11-22", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy: Current Policy and Conditions", "summary": "This report discusses the monetary policy that can be defined broadly as any policy relating to the supply of money. The main agency concerned with the supply of money is the nation\u2019s central bank, the Federal Reserve, monetary policy can also be defined in terms of the directives, policies, statements, and actions of the Federal Reserve.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20061122_RL30354_dd7f9ac498d45eac968f1dd31c506e137557a8a5.pdf" }, { "format": "HTML", "filename": "files/20061122_RL30354_dd7f9ac498d45eac968f1dd31c506e137557a8a5.html" } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc809055/", "id": "RL30354_2006Oct25", "date": "2006-10-25", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Policy: Current Policy and Conditions", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": 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