Monetary Policy

Monetary policy refers to the approach central banks, such as the Federal Reserve in the United States, use to manage the nation’s money supply and steer overall economic performance. The main objectives are to foster economic growth, control inflation, and ensure high employment. To do this, central banks may adjust interest rates, change the amount of money banks are required to keep in reserve, or buy and sell government securities.

As an example, during the COVID-19 crisis, the Federal Reserve used a method called Quantitative Easing (QE), purchasing large quantities of government bonds. This action was aimed at injecting more money into the economy, reducing long-term interest rates, and motivating businesses and consumers to borrow and spend, all with the goal of supporting economic activity and keeping financial markets stable during the downturn.