How Does the Fed Implement Monetary Policy?
Monetary policy consists of the efforts of the Federal Reserve (“the Fed,” for short), the central bank of the United States, to influence money and credit conditions in the economy in order to achieve the country’s macroeconomic goals. Those goals include stable prices, high employment, and maximum sustainable growth in the economy. Prices are considered stable when they change slowly enough so that people pay little attention to price changes in making economic decisions. Growth can be measured by the rate of change of real gross domestic product (GDP) that is, the output of the economy adjusted for changes in prices. The level of sustainable growth, the rate at which the economy can grow without causing the inflation rate to accelerate, is determined by how fast the hours worked by the U.S. labor force and output per worker grow.
