Federal Reserve System Under Recession Essay

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Pages: 3

Federal Reserve System As the recession expands all over the U.S, more and more people are interested in how Federal Reserve Bank works and how can they work out some methods to tide over the crisis. Recently, our university, California State University Fresno, invited Fed staff to present the purposes and functions of the Federal Reserve System, banking supervision and regulation, and the conduct of monetary policy. As we all know, Federal Reserve Bank is all banks’ bank and it use monetary policy to control the amount of money circulates in the market. Monetary policy is a way for U.S. government to control the economy and it influence the performance of the economy. For example, if the money supply is too fast, it may bring a higher inflation rate which is bad for the economy growth; as a result, it is Fed’s responsibility to work out a best way to make sure the economy grows fast and healthily. The goals of U.S. monetary policy are “promote maximum sustainable output and employment, and promote stable prices” (Zimmerman). Fed has three main tools to work through: reserve requirements, discount window, and open market operations. Also, the most popular one is the open market operations. It focus on buying and selling government securities. There is a committee called Federal Open market Committee (FOMC) overseeing the open market operations and it is the fed’s main policy-making committee.
The recent conference was on January 24-25 and the topic focused on the “Longer-Run Goals and Policy Strategy” (2012 FOMC Meetings). FOMC provides statement of longer-run goals and make a 2% numerical inflation target. In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals.
There is no doubt that we are experiencing economy recession now; however, there are still a lot of positive indicators on the economy. Firstly, Housing seems to have stabilized. The price of houses is steady and buyers have been increasing during these…