Monetary Policy: What it is and Who is in Charge

This is a quick presentation I created for my MBA class on the U.S. Monetary Policy and the role of the Federal Reserve. Any questions at all, please reach out and I will be happy to answer.

1. Monetary Policy: What it is and Who is in C harge By Mazen El-Haidari Communication for Finance Professionals MBA 6366

2. What is Monetary Policy? Determines the size and rate growth of the U.S. money supply which in turn affects the interest rates. Two Types: Expansionary – to increase money supply Lower unemployment Boost borrowing and spending Stimulate economic growth Contractionary – to decrease money supply Controls inflation Can slow economic growth Depress borrowing and spending

3. Who is the Federal Reserve? They are the central bank of the U.S. and are in charge of the U.S. monetary policy. Comprised of 12 regional Fed. Res. Banks made up from the Central Government Agency (CGA) CGA is considered independent as its decisions do not rely on the president or any other govt. official. 4 Main Responsibilities: Conduct monetary policy by influencing the credit conditions in the U.S. Economy Supervise banking institutions ensuring safety of financial system and protecting consumer’s credit rights Maintain financial stability Provide financial services

4. Understanding Demand Demand People demand money Transaction Demand – buying goods through daily needs Ex. Groceries, going to the movies, restaurants, etc. Asset Demand – preferring liquid assets over illiquid assets Ex. Checking Account is more liquid than real estate

5. Understanding Supply Supply The Federal Reserve Supplies Money and controls it If the Fed. ↑ money supply, it will ↓ interest rates If the Fed. ↓ money supply, it will ↑ interest rates.

6. How does the Federal Reserve adjust the Money Supply? 3 Federal Reserve Tools that affect Money Supply Reserve Requirement – How much money banks have to hold in reserves mandated by the Fed. Discount Rate – Interest rate the Fed. charges banks to borrow money (affects the Fed. Fund Rate) Open Market Operations – buying and selling of govt. treasuries (most important because Fed. does this the most) 3 FED Tools   Increase Money Supply Decrease Money Supply Reserve Requirement ↓ ↑ Discount Rate ↓ ↑ Open Market Operations Buy (Big) Sell (Small)

7. Thank You