Abstract

Recent Monetary Policy Strategies in the United States

During the 1970s the U.S. Federal Reserve quantified its monetary policy increasingly in terms of desired growth rates of monetary aggregates. This process was enhanced by the intellectual ascendancy of monetarism and given legal status by the Congressional adoption of the Federal Reserve Reform Act of 1977 (which made law of House Concurrent Resolution 133, first passed in 1975) and the Full-Employment and Balanced Growth Act of 1978 (Humphrey- Hawkins Act). As a result of these laws the Federal Reserve now sets and publicly discloses money growth rate targets for the upcoming year. This paper briefly reviews the procedures for formulating monetary policy in the United States in recent years, starting when policy was expressed as monetary targets, and describes and analyzes the Federal Reserve’s strategies for achieving these targets. The Federal funds rate operating strategy of the 1970s is discussed as background for a description and analysis of the new, post-October 6, 1979 reserve strategy. The paper then considers the difficulties for a reserve strategy posed by lagged reserve accounting, and the new and enhanced role of the discount window.