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Monetary policy affects the economic and financial decisions of virtually all of us from workers to borrowers to investors Rukeyser 105 Louis Rukeyser wrote If we want monetary policy to play its proper role in a true national economic reconstruction the authentic task is to get the Fed to stop bouncing like a Chinese Ping-Pong ball switching every few months between the inflationary effect of pumping far too much money into the economy and cramping recessionary effect of supplying far to little Rukeyser 104 And because the US is the largest economy in the world its monetary policy also has significant economic and financial effects on other countries The object of monetary policy is to influence the performance of the economy as reflected in such factors as inflation economic output and employment It does so by affecting demand Most people are familiar with the fiscal policy tools that affect demand such as taxes and government spending Less familiar is monetary policy it is conducted by the Federal Reserve System the nations central bank and it influences demand mainly by raising and lowering short-term interest ratesThe Federal Reserve System the Fed is the nations central bank It was established by an Act of Congress in 1913 and consists of the seven members of the Board of Governors in Washington DC and twelve Federal Reserve District Banks Congress structured the Fed to be independent within the government What that means is although the Fed I accountable to Congress it is insulated from day-to-day political pressures This reflects the conviction held both the US and in many other countries that the people who control the countrys money supply should be independent of the people who frame the governments spending decisions Most studies of central bank independence rank the Fed among the most independent in the world World 68Each reserve bank President is appointed to a five-year term by that banks Board of Directors subject to final approval by
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