The Effect of Fiscal and Monetary Policies in American Economy

When bet judge ar decreased, the cost of capital is also decreased, and the effect is stimulation of the delivery (Munro, 1995, p. 30).

The Fed's current strategy seems to be in keeping with maintaining a relatively low rate of inflation. When the Fed determined that the preservation was growing faster than desired, which carries with it an increased inflation rate, it began increasing the interest rate, raising order a quarter-point at each of its every quarter meetings during 1994 ("Forget the Critics," 1995, p. 27). The Fed decreased rates in mid-1995, amid signs that the economy had been slowed down sufficiently, to a greater extentover additional reductions in interest rates atomic number 18 unlikely (Matthews, 1995, p. 28).

Where fiscal policy is dependent on domestic politics, monetary policy, and the Fed, is also influenced by politics. The Fed is, ostensibly, removed from domestic politics and maintains a strictly objective role, solely the reality is that the actions of the Federal Reserve mass have a direct impact on the political environment. If mone

ary policy is not successful and inflation rises, for example, it can be difficult for the president to be re-elected.

If, on the some other hand, monetary policy keeps the economy growing at a steady rate, and unemployment remains low, voters will perceive their economic emplacement as being good, which whitethorn bode well for an officer president.

The policies of the Fed also affect individuals on a effortless basis since mortgage rates and credit card rates often vary with the movement of the interest rates controlled by the Fed. As consumers pay more than for their mortgages, or pay more interest on their credit cards, they have less bills to invest in the economy or to spend on consumables, effectively slowing down economic growth. However, these same consumers are likely to resent increasing interest rates and may demonstrate that disfavor at the polls.

Matthews, G. (1995, August 14). Experts: Fed should ease, but probably won't. American Banker, p. 28.

There are other more concrete variables which the Fed must take into account as well, and chief among these is the effect of its monetary policy on land markets and
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