Question

What monetary policy has the Fed implemented so far this year, and why has it chosen to implement them?

What monetary policy is expected in December, after chairman Powell's testimony? Give 3 reasons why Powell feels this is appropriate.

Chairman Powell mentioned that fiscal policy also plays a role. What did he say about fiscal policy?

Answer 1

a. In the current year it has been observed that the Fed has reduced the rate of interest three times and the impact of these rate cuts has been felt on household and business spending. It has chosen to implement them to increase the rate of economic growth in the economy because reduced rate of interest reduces cost of investment and thus increases business investment. It also reduces savings and thus increases consumption expenditure of the consumers.

b. It is expected that Fed will not change the rate of interest in December because:

i. The economy is on the upward path of development and all markets like goods market , labor market have remain strong for this year.

ii. It is not interested in keeping a negative rate of interest for the economy because further rate cuts will move the economy into negative interest rate zone.

iii. Inflation is also favorable and in the target zone these days.

c. Chairman Powell Emphasized that after the Central Bank has has three rate cuts in the year, the role of fiscal aid or the fiscal policy of the government also plays an important role. The federal budget debt is also rising in the economy.