Question

describe the trend in interest rates over the last three years. how does the fed use open market operations to impact money supply and interest rates? And what are the issues that face our economy today

Answer 1

Open market operations are market operations conducted by fed reserve by way of sale or purchase of Government security is to or from the market with an objective to adjust the the currency liquidity conditions in the market on a durable basis. If there is excess liquidity fed resorts tu sale ab securities and sucks out the money liquidity. Similarly when the liquidity conditions are tight fed buys security from the market there releasing liquidity into the market.it is one of the quantitative monetary policy tools which is employed by the the fed or Central banks of a country to control the money supply in the economy.

Fed interest rate policy over the last 3 years.

in the light of the implications of global development for the economic Outlook as well as muted inflation precious the fade open Market committee lowered the the target range for the federal funds rate over the second half of 2019. Specially at its July, September and October meetings the FOMC lowered the target range a cumulative 75 basis points, bringing it to the the current range 1-1/2 to 1-3/4 present. In its subsequent meetings the committee judged that the prevailing stands of monetary policy was appropriate to support sustained expansion of economic activity, strong labour market conditions and inflation returning to the committees symmetric 2% objective. The committee noted that it will continue to monitor the implications of incoming information for the the economic Outlook as it assesses the appropriate path of the target range for the federal funds rate.

Federal reserve support the US economy and US financial market during covid-19 through open market operations as under:- the fed has cut its target for the federal funds rate, the rate banks pay to borrow from each other overnight buy a total of 1.5 % point since March 3 bringing it down to a range of 0% to 0.25%. the federal funds rate is benchmark for other short term rates and also effects long term rates so this move is aimed at lowering the the cost of borrowing on mortgages, auto loans, home equity loans, and other loans but it will also reduce the interest income that savers get. Also fed supporting households and customers, state and municipal borrowings, through its policy. The fed is also offering dollars to Central banks that don't have an established swap line through a new repo facility called foreign and international monetary authorities. The fed will make overnight dollar loan to the central banks, taking US treasury debt as collateral.