Monetary policy

Definition

Monetary policy is the process by which a central bank, like the Federal Reserve in the United States, controls the supply of money in an economy, primarily through interest rates and other measures, to achieve macroeconomic goals such as controlling inflation, managing employment rates, and stabilizing currency values. It plays a crucial role in influencing economic activity, consumer spending, and overall economic health.

Related terms

Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Interest Rates: The amount charged by lenders to borrowers for the use of money as a percentage of the principal.

Central Bank: An institution that manages a state's currency, money supply, and interest rates