The Federal Reserve System in Influencing the Macroeconomic

What is the Fed?
•The Federal Reserve System (FRS) is the central bank of the U.S., and it regulates the monetary policy.
•It consists of a central board of governors and 12 regional federal reserve banks. 
•Its main responsibility is to control the money supply does not grow too quickly and too slowly.

How the Fed is adjusting the monetary policy?
1.The Fed can manipulate the interest rate.
•This action involves raising or lowering the interest rate depending on the current economic situation.
•If the inflation condition is sticky, the Fed might need to increase the interest rate, causing it to become expensive to borrow money and encourage people to save money in the bank. This condition might lead to economic recession or stagflation.
•Likewise, if the inflation condition is mitigated after the higher interest rate season, the Fed might consider reducing the interest rate.

2.The Fed is involved in Open Market Operations (OMO)
•This action involves buying or selling the Treasury Bonds.
•If the money supply is not sufficient, the Fed will buy the treasury bonds to increase the money supply, hence lowering the interest rate.
•If the money supply is sufficient, the Fed will sell the treasury bonds to decrease the money supply, hence increasing the interest rate.

3.The Fed adjusts the reserve requirement
•It determines the level of reserves a bank must hold in comparison to specified deposit liabilities.
•The fed can effectively increase or decrease this amount by adjusting the required reserve ratio.

4.The Fed influences the market perception 
•The Fed might say about the current economy whether it is good or bad, and hence influencing the investors’ decision.
•For example, the Fed might imply it would further increase the interest rate and thus, bondholders might keep their bonds to prevent losses.

Personal Outlook;
-The current situation of the U.S. economy is still unknown, and the Fed is not confident to decrease the interest rate.
-The Fed might reduce the interest rate before the 2024 US election or after the election.
-A.I industry is popular, it’s showing a great influence on the macroeconomy, especially the semiconductor industry which is not in favor of sustaining in the condition of higher interest rate.

-The global tension between the U.S. and China will subsequently cause greater market fluctuation, and it affects the decision of the Fed to either increase or decrease the interest rate.

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By: Jshen Ng