Monetary & Fiscal Policy
Good afternoon and welcome to our newsletter! Bitcoin has been dropping since our last newsletter. It has rebounded to the high of $37,800 this morning but is currently at $36,450.. Total market cap is now $1.66 Trillion mark. Remember that you can read our previous newsletters by going to our website. *Dips are for buying, It is always smart to take profits when everything is green, depending on your investment strategy! Profit is Profit*
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What is Monetary Policy?
Monetary Policy is a set of guidelines that a central bank uses in order to increase the growth of an economy as a whole. These rules are in place to make sure that the central banks do not try to falsely grow an economy without any sort of guidelines. Monetary policy pertains to the control of the supply of money throughout an economy. As we have all seen recently that can play a huge role in the lives of a countries citizens and that of the economy. Turkey’s inflation problem is a prime example of what it looks like to have no oversight over the monetary policy or lack of some control.
What is Fiscal Policy?
Fiscal policy refers to the set of guidelines involved with government spending and tax policy that affect the way a nation's supply and demand on the prices of goods and trade affect the macro economy. This works in order to regulate the implications of federal decisions on financial policies creating a system that protects what works and has the ability to change that which is in place on an as needed basis.
What is the FOMC?
The Federal Open Market Committee (FOMC) is the Federal Reserve System's monetary policymaking body. The FOMC is made up of 12 members: seven members of the Board of Governors and five presidents of the Reserve Banks. The FOMC is chaired by the chairman of the Board of Governors (Jerome Powell); the president of the Federal Reserve Bank of New York is a permanent member of the Committee and serves as Vice Chairman. The remaining four voting slots on the FOMC are filled by the presidents of the other Reserve Banks on a rotational basis. All Reserve Bank presidents, including those who aren't voting members, are invited to attend FOMC meetings, engage in discussions, and contribute to the evaluation of the economy and policy alternatives. The FOMC meets eight times a year, usually once every six weeks or so. Unscheduled sessions of the Committee may be held as needed to assess economic and financial developments. Following each regular meeting, the FOMC produces a policy statement that highlights the Committee's economic outlook and policy decision. Following each FOMC meeting, the Chairman holds a press conference to discuss the FOMC's policy decisions and to offer context for those decisions. The Federal Reserve uses monetary policy to help the economy accomplish its macroeconomic goals of maximum employment and price stability. In most cases, the FOMC implements policy by changing the level of short-term interest rates in response to changes in the economy. (Go back to our first newsletter to learn more about the federal reserve)
What happened during the FOMC today?
The FOMC met today and chair Jerome Powell held a press conference today at 2:30 EST. The following is a summary of his comments: Our policy has been reacting to economic activity [due to the virus], but the economy's policy ramifications remain unknown. The labor market is strong/very tight, with solid job gains, but low labor force participation. Inflation is well beyond the target of 2%. Supply chain bottlenecks are lasting longer than expected. Inflation is expected to decrease during the year. Price stability is the goal. Goals for rate hikes and balance sheet runoff remain unchanged. In early March, asset acquisitions are still coming to a conclusion. Fed funds rate will be raised soon. After the rate hike, the balance sheet will be reduced. We reserve the right to adjust policy in response to economic changes.Growth targets are matched with labor market participation. We predict that it will continue to rise. There are currently no concrete plans in place for decreasing balance sheets. Reinvestments are part of a larger plan to reduce costs.The FFR remains the most significant tool for combating inflation.
In general, the FED made no fresh statements. The FED is well aware that they are caught between a rock and a hard place. They must tackle inflation without causing asset markets to collapse. They need to "thread the needle," and they're learning as they go. Rates remain at 0% and are expected to raise to .25% in March.