Federal Reserve Monetary Policy Analysis

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Federal Reserve Monetary Policy Analysis

The paper describes the current state of the U.S. economy, and discusses whether the Federal Reserve is more concerned about high inflation or recession, or other issues. Accordingly, we analyze the stated direction of recent monetary policy and some actions undertaken by the Federal Reserve and conclude that it is not likely to be concerned about high inflation currently, but rather trying to offset the effects of unraveling recession. Introduction

Amid a severe global economic downtown, the U.S. economy contracted further and labor market conditions worsened over the past year. In order to deal with the bad economic situation, the Federal Reserve has implemented unprecedented monetary policy to boom the economy. So now what is the state of the economy? Is the Federal Reserve more concerned about high inflation or recession? What policy actions have the Federal Reserve taken to confirm the direction stated in the recent projections? The purpose of this paper is to explore these questions in detail. Analysis

During the past year, the Federal Reserve has committed more than a trillion of dollars to strengthen and stabilize the financial markets. Together with the stimulus packages, these actions are in some degree working. (1) However, despite the signs showing that the contraction has somewhat moderated, in the early part of 2009, economic activity continues to deteriorate, and strains in financial markets and pressures on financial institutions continued. The Federal Reserve has stated in the report to Congress that it still more concerned about the recession rather than the risk of inflation. What the Federal Reserve tries to do is to stop the economic from getting worse. There are many reasons for the Federal Reserve to take such kind of action. (2) First of all, economic activity, which fell sharply in the fourth quarter of...
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