U.S. Monetary Policy: International Results

Abstract

This article covers the major directions and international results of modern U.S monetary policy. The primary instrument of U.S. monetary policy is the federal fund rate, which is an interest rate on loans of Federal Reserve deposits between commercial banks. The Federal Reserve characterizes its current policy decisions in terms of targets for the federal fund rate. The federal fund rate is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. In the Section 1 the current operating system of the Federal Reserve is being analyzed. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve more accurate tools with which to achieve its strategic objective of influencing inflation and output. Section 2 reviews the major effects of Trump administration monetary policy. The first result of this policy is great increase of money in circulation. This monetary expansion could decrease dollar exchange rate to Chinese currency and some other currencies. U.S. dollar position as an international reserve currency may be weakened. Dollar share in international trade in goods and services may also decrease. Section 3 reviews the effects of U.S. monetary policy for international financial markets. The article covers key theoretical approaches to the problem of development of the international monetary system. Major economic drawbacks of the current international monetary system are being discussed. US dollar position in the international monetary system and in the financial markets is being analyzed.