US Monetary Policy tools and public perception:
Just about the only tool the public hears about regarding this issue is interest rates: The one most discussed is the Federal Funds rate, which is actually not a rate, but a range, set to guide banks in their lending to each other, thus it is actually a bit of a misnomer. There are several others:
Board of Governors of The Federal Reserve System
www.federalreserve.gov
Sorry, for quoting yet another in my interminable tendency to quote official sources.
As that release shows the Federal Open Market Committee (FOMC) executes all US official monetary policy, including acting as the primary market maker for US Treasury securities.
The other aspects of monetary policy, interest rate management and inflation control are more arcane and are public but almost never discussed in daily news cycles. Without going into arduous detail, the major ones are:
- changing reserve requirements of US Federal Reserve member banks. To stimulate the economy, lower the requirements. To slow the economy raise those requirements. That raises and lower the amount banks can lend, hence indirectly affect the various interest rates, especially the Federal Funds rates, and can be executed without formally change the target rate range.
-Buying US Treasury securities, thus increasing total financial liquidity, or selling them, which decreases liquidity. This tactic is very frequently used and is effective in growing or shrinking growth in bank lending without directly effecting interest rate changes.
-The FOMC has the only definitive data on ownership, purchases and sales, or US Treasury securities. Oddly, perhaps, there is often dismissal of their data, which informs precisely what countries are buying and selling US Treasury obligations and what their positions are. That information and trends directly influence Federal Reserve mandated monetary policy.
Going deeper in this subject begins to delve in the even-more-arcane subject of Bank regulation and Bank Holding Company regulation. If anybody is inclined to do that I can recommend several sources that can help. To begin with there are five regulators which sometimes/often act in uncoordinated fashion. In stress these all have indirect effects on interest rates that can be substantial. (2008 may the most most recent near-catastrophic time of that confusion.
In short looking only at Federal Reserve Board FOMC minutes gives quite good very short term outlook, but that disclosure is in the form of broad generalizations that may or may not disclose actual activity. Just think about, say, Alan Greenspan, to understand that the language used and disclosures made may mean little in fact.
But...their every word moves securities markets so all the world listens assiduously is search of actual facts. For facts watch the FOMC, that activity is the actual fact, not public positioning.
NOTE: I am fully aware that the press, securities analysts, and financial pundits rarely discuss these things. In context, how many of those same entities understand Giapress or structural battery packs. Why is monetary policy any different?
