Hans Rainier Ylanan Rufila
Professor Paskelian
September 16, 2013
The Federal Reserve and Monetary Policy
The Federal Reserve is the centralized bank within the United States of
America that conducts and oversees “monetary policy” which are actions that the Federal
Reserve takes in order to oversee the “availability and cost of money” as well as the
availability of credit in order to satisfy the Government’s and the Citizens’ needs.
According to the Federal Reserve website, the “Federal Reserve Act of 1913″ allowed the
Federal Reserve to have the power of conducting and overseeing monetary policy. Other
than the structure of the Federal Reserve, I will also discuss the three tools of monetary
policy which are “open market operations,” “the discount rate” and “reserve requirements.”
Open Market Operations is one of the three tools that the Federal Reserve uses to conduct
monetary policy. Open Market Operations is the purchase and sale of securities in the open
market by a central bank. The Federal Reserve utilizes open market operations in order to
adjust federal funds rates. Federal Funds Rates are the interest rate at which depository
institutions lend reserve balances to other depository institutions overnight. The Federal
Reserve also utilizes the “discount rate” which determines interest rates charged on
commercial banks and other depository institutions for loans from their regional federal
reserve’s bank lending facility. The “reserve requirements” are the required funds that