A statement by the Federal Reserves Federal Open Market Comm

A statement by the Federal Reserve’s Federal Open Market Committee (FOMC) released in 2010 reads: Information received since the FOMC met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently. ... Business spending on equipment and software has risen significantly. ... Housing starts have edged up but remain at a depressed level. ... With substantial resource slack ... and longer-term inflation expectations stable, inflation is likely to be subdued for some time. ...The Committee will maintain the target range for the federal funds rate at 0-0.25%. Explain what kind of monetary policy the Fed is announcing in this statement.

What are the intended impacts of this policy on the economy (producers, consumers), and how will the impact work?

Solution

Growth in household spending , business spending all leads to rise in aggregate demand in the economy . Maintaining the federal funds rate and subduing inflation is likely to be a stabilization monetary policy that is being followed .

Growth in AD is likely to cause inflation but stabilization policy can cure inflation in the long run . The short run impacts are decrease in money supply or increase in real interest rates . This is will cause the AD of producers and consumers to slightly restrain .