Research How Effective The Federal Open Market Committee

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The Federal Open Market Committee
The Federal Open Market Committee was established to make the United States monetary policy. The body has two main goals which include reducing the level of unemployment and stabilizing the market prices. The Federal Reserve uses open market policy to implement monetary policy in order to achieve these goals (Chang and Hanson 3). This assignment aims at discussing how the committee open market operations have been effective towards meeting the goals.
The federal open market committee uses the open market operation to buy and sell government securities. The exchange affects bank reserves which determine the banks’ abilities to give loans. The money policy regulates cash flow in the economy to control unemployment and inflation rate (Chang and Hanson 3).
Maximizing of the Employment level
The level of employment depends on several variables such as the monetary policy, the technology, job effort, saving culture and perils. Maximum employment and output means the proportions which are eventually constant with these variables. The monetary policy has a short term impact on the maximum employment and output (Chang and Hanson 18).
The unemployment rate in the United States since 2006 increased from 4.6% up to 9.6% in the year 2010. Since then, the rate decreased to 4.9% in 2016. The unemployment rate has therefore dropped over the past decade since the implementation of monetary policy. The federal open market committee buys bond from financial institutions, thus increasing bank reserves and financial capacities. The banks lower their loan interest rates in order to lure borrowers. This stimulates investment in the economy, thus maximizing the employment level in the economy (Chang and Hanson 11).
Stabilizing the Market Prices
The federal open market committee formulates monetary policies to keep the interest rates low in order to stabilize the marke...