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Recent trends in U.S. monetary policy and its influence on economic development: an analytical review

Journal: Scientific and practical journal “Economy of Industry” (Vol.87, No. 3)

Publication Date:

Authors : ; ;

Page : 125-142

Keywords : monetary policy; Federal Reserve System; key rate; target inflation; normalization of monetary policy; new normality;

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The article is devoted to the latest trends in the U.S. monetary policy, which has a significant impact on global financial markets, exchange rates, financial and real investment flows, prices of traded goods, etc.As the analysis has shown, the U.S. monetary policy’s formation, as well as in other developed countries, is now taking place in conditions of new monetary normality, which was formed after the "great recession" and is characterized by historically low interest rates, disinflationary pressure and slowdown of economic growth.The US was the first advanced economy that overcame the financial crisis of 2007-2008. This was due, among other things, to the monetary policy of the Federal Reserve System (Fed), which at first practically zeroed key rates and then launched a program of quantitative easing, which allowed to "inject" $3.7 trillion into the country's economy from December 2008 to October 2014. At the same time, this led to a multiple increase in the balance sheet of the Fed and changes in its structure.Since autumn 2014, the regulator decided to start normalizing the monetary policy, which envisages a gradual increase in the target range for the federal funds’ rate and the reduction of its aggregate securities holdings. As a result of these actions, the U.S. Federal Reserve now has a slightly greater potential for monetary stimulus than many other developed countries in the event of a new recession. Simultaneously, however, the Fed's current interest rates are significantly lower than its long-term normal level.Despite this, in early 2019 the regulator changed its rhetoric and policy, and on July 31, 2019, the target range for the federal funds’ rate was reduced due to weak growth of business fixed investment and problems with achieving the target inflation. It is likely that due to problems in the U.S. economy, the process of reducing rates will continue.This course of events shows that, firstly, in the current environment, advanced economies should not rely heavily on monetary policy as a reliable mean of resolving deep structural problems. And, secondly, that global financial instability is a new reality that has come to exist seriously and for the long haul, not only for purely monetary reasons, but also because of fundamental factors of development and deepening global contradictions by the Fourth Industrial Revolution. For Ukraine, this new reality does not promise anything good, because as a small open economy specialized in raw materials exports, it is in a high-risk zone.

Last modified: 2019-11-28 14:23:23