Monetary policy
Monetary policy is how a central bank manages interest rates and the money supply to keep inflation low and employment high. Raising rates cools the economy; cutting them stimulates it.
The US Federal Reserve has a dual mandate: stable prices and maximum employment. Its main tool is the federal funds rate, backed by asset purchases in crises.
Related terms
- Federal funds rate: The federal funds rate is the interest rate at which US banks lend reserves to each other overnight.
- Quantitative easing: Quantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
- Fiscal policy: Fiscal policy is the government's use of spending and taxes to influence the economy.
- Inflation: Inflation is the rate at which prices across the economy rise over time, so each dollar buys less.
Guides
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.