What is the Federal Reserve system, and does it exist in every country?

Is the Fed part of the government, or independent in your view?

What are their tools of monetary policy?

How does the Fed implement monetary policy to manage the economy?

Has the Fed used any of their tools lately, if so, how and when (include any research links in your post). Given the current state of the U.S. economy, should the Fed be using expansionary monetary policy or contractionary monetary policy? Why or why not?

Answer:

1.Federal Reserve system instituted on 23 December 1913, is the Central banking system in the USA. It acts as checker of monetary system and financial efficiency in the USA. The Federal Reserve Act is a key document governing the Federal Reserve system or FED. It’s under the jurisdiction of Federal government of united states. Its Ownership stands with nobody but controlling power resides with the member private banks.

Central banking system or FED like institution may or may not exist in every country. Given the historical, political and financial background of each country, the country may or may not institute its own financial mechanisms.

2.Answer: FED is under the jurisdiction of Federal government of united states. Its Ownership stands with nobody but controlling power resides with the member private banks. It is not part of the government; it acts as an independent central bank based on rules of Federal Reserve Act of congress. It has freedom in its decision and not bound by the orders of president or any other body of government, neither its funding’s are mandated by congress. Hence it functions independent of government.

3.Answer: Some of the tools of monetary policy are:

a. Open market operations

b. Bank Rate policy

c. Reserve system

d. Credit Control policy

e. Moral persuasion

4.Answer:

a. Fed implements the monetary policy by keeping the inflation (2%) parallel to the target.

b. Central bank conducts gathering 8 times in a year for its policy review.

c. Regular conduct of open market operations and adjusting the discount rate as and when required.

d. Check on the federal fund rate. Increasing or lowering the Federal fund rates leads to tighten and accommodative monetary regime.

e. Meeting and setting targets for the reserve requirement.

5.Answer: The most recent use of tools by FED can be seen in its efforts to counter the COVID -19 pandemic. It used both traditional and non-traditional tool to help businesses and households to face the tough times. It has done this by:

· Bringing Federal funds rate close to zero.

· Increasing the Repayment of loan period.

· Lowering of the discount rates.

· Emergency lending facility.

· Purchase of treasuries.

6.Answer: Given the current state of US Economy and analyzing the impact of slowdown caused by COVID -19 Pandemic Fed must be using expansionary policy to bring back the spirit and sentiments of growth. The growth of unemployment cannot be tackled through closed and restrictive policies.

Discounts rates and other regulatory requirements needs to be relaxed so as to ease the environments for businesses to furnish in hard times. Helping all shareholders of market by appropriate money supply is must for growth. Hence an expansionist policy is needed. Fed should not allow hard times turn into Hounded ones.