What is Monetary Policy?
The actions of a central bank, such as the Federal Reserve, to control the money supply and interest rates to achieve economic objectives.
Monetary policy refers to the tools used by a nation's central bank (like the Fed in the US or the Bank of England in the UK) to influence the availability and cost of money and credit. The primary goals are typically to maintain price stability (low and stable inflation) and support sustainable economic growth.
The main tools include setting key interest rates (like the federal funds rate), conducting open market operations (buying/selling government bonds), and setting reserve requirements for banks. An 'accommodative' or 'easy' policy (lowering rates) aims to stimulate borrowing and spending. A 'tight' or 'contractionary' policy (raising rates) aims to cool down an overheating economy and curb inflation.