Monetary Policy and the Fed

Key Takeaways

• The Federal Reserve Board and the Federal Open Market Committee are among the most powerful institutions in the United States.
• The Fed's primary goal appears to be the control of inflation. Providing that inflation is under control, the Fed will act to close recessionary gaps.
• Expansionary policy, such as a purchase of government securities by the Fed, tends to push bond prices up and interest rates down, increasing investment and aggregate demand. Contractionary policy, such as a sale of government securities by the Fed, pushes bond prices down, interest rates up, investment down, and aggregate demand shifts to the left.