Monetary Policy
What is Monetary Policy?
How a central bank manages interest rates and the money supply to steer the economy.
Understanding Monetary Policy
Monetary policy is set by a central bank, such as the Federal Reserve. Its main tool is the short-term policy interest rate, which influences borrowing costs across the economy.
Tighter policy (higher rates) cools spending and inflation; looser policy (lower rates) supports borrowing, spending, and employment. In deep downturns, central banks may also buy bonds, known as quantitative easing.