Question

In a brief discussion post of not less than 200 and not more than 350 words, please briefly describe current and likely future monetary policy, assess whether you agree or disagree with that likely future path of monetary policy, and clearly relate your discussion the theory studied in the textbook chapter as well as the pieces above.

Answer 1

1. Federal Reserve has currently adopted "Quantitative Easing " form of monetary policy in which it has cut the interest rates to almost zero zones and it has also relaxed the Reserve requirement for commercial banks and it has also engaged itself into to buying of the securities from the market in order to infuse the Liquidity into the system so it has been supportive policy & it is inclined towards stimulation of demand. It is also known as "Dovish or Expansionary" policy.

2. Federal Reserve expected monetary policy is that Federal Reserve will be stabilizing the monetary policy and it will be trying to keep the rate of interest to lower levels, till the economy is stable and demand is back.

If we're talking about a nearby future of 3 years, then federal reserve was already told that it will be keeping the rates lower in order to stimulate the economy.

3.In my view, the Fed will continue aggressive on the potential rate hikes and is expected to do three interest rate hikes this year which will frame the current monetary policy because Fed is worried about the potential risk of asset bubble and declining returns on long term assets such as pension investments.