Federal Reserve and Monetary Policy Part 7 of 13

The Fed and Monetary Policy

The Feds primary mission is to ensure that enough money and credit are available to sustain economic growth without inflation. If there is an indication that inflation is threatening our purchasing power, the Fed may need to slow the growth The MasterTrader E Book of the money supply. It does this by using three toolsthe discount rate, reserve requirements and, most important, open market operations.

Responsibility for open market operations rests with the Federal Open Market Committee (FOMC). The committee, consisting of the seven-member Board of Governors and five of the 12 Reserve Bank presidents, meets eight times a year. The governors and the president of the New York Fed are permanent voting members; the other Reserve Bank presidents fill the four remaining voting-member positions in rotation. All 12 presidents participate fully in FOMC discussions. Reserve Bank boards of directors, research departments and regional business Institutional Forex System leaders contribute grassroots information and insights that are used to formulate monetary policy. The Reserve Bank boards recommend changes in the discount rate to the Board of Governors, and the Board of Governors has jurisdiction over reserve requirements. In this way, both the public and the private sectors contribute to these decisions.

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Challenges for Monetary Policy Part 4 of 14

It needs to be underscored The Best Forex Trading System Ever that being proactive and not passive in doing our job does not mean that we will abandon prudent decisionmaking. We are the central bank of the United States, the bellwether economy of the world. Our job is not to bail out imprudent decisionmakers or errant bankers, nor is it to directly support the stock market or to somehow make whole those money managers, financial engineers and real estate speculators who got it wrong. And it most definitely is not to err on the side of Wall Street at the expense of Main Street.

In fact, to benefit Main Street, we have a duty to maintain a financial system that enables American capitalism to do its magic. To this end, we have recently taken steps designed to circumvent bottlenecks in interbank lendingsteps that include changing the operation of our discount window and opening a new term auction facility. This facility has provided $70 billion in funds in roughly a month and will soon provide another $30 billion, and perhaps even more over time if needed.

In setting broader monetary policy and the fed funds target Ten Pips a Day rate, the Fed operates under a dual mandate. We are charged by Congress with creating the monetary conditions for sustainable, noninflationary employment growth. Put more simply, our mandate is to grow employment and to contain inflation. Unstable prices are incompatible with sustainable job growth. Some critics worry that we have forgotten that axiom. We havent.

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