Current Monetary Policy of the United StatesEsraa AlhassanJason GurtovoyEC 2104/9/2015The term monetary policy refers to the method by which the monetary authority of a country, such as the Federal Reserve or Bank of England controls the money supply with the aim of promoting economic stability and growth and is primarily achieved by targeting various interest rates. Monetary policy can be either contractionary or expansionary, with contractionary policy reducing the money supply, reducing the rate of money supply, or leading to an increase in interest rates. In contrast, expansionary policies increase the money supply or lower interest rates. Interest rates can also be called tight if their goal is to reduce inflation; neutral, if their objective is neither to reduce inflation nor to stimulate growth; or accommodative, if they aim to stimulate growth. Monetary policies have a significant impact on the economic stability of a country and, if not formulated well, can lead to economic disasters (Reinhart and Rogoff, 2013). The current monetary policy of the US Federal Reserve, although accommodative and expansionary in order to stimulate growth after the 2008 recession, will lead to an economic trap if continued in its current state. This article will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability. The first major aspect of the Federal Reserve's monetary policy is its interest rate policy. This interest rate policy is primarily determined by the federal funds rate figure, which is the rate at which commercial banks with balances held within the Federal Reserve can borrow from each other overnight in gold...... middle of paper. ....y with abundant liquidity: a new operational framework for the Federal Reserve. Guidance Note PB14, 4. Kearns, J. (April 4, 2014). Fisher says QE would end in October based on the current pace of reduction. Retrieved June 18, 2014 from http://www.businessweek.com/news/2014-04-04/fisher-says-qe-would-end-in-october-based-on-current-taper-paceLabonte, M. (January 7, 2014). Monetary policy and the Federal Reserve; Current policy and conditions. Congressional Research Service. Meltzer, A.H. (February 13, 2014). EQ IS A MISTAKE, A BIG MISTAKE. Retrieved June 18, 2014 from http://www.nomics21.org/commentary/qe-mistake%E2%80%94-big-one United States Federal Reserve. (February 11, 2014). Monetary policy report. Retrieved June 18, 2014 from http://www.federalreserve.gov/monetarypolicy/mpr_20140211_summary.htmWilliams, JC (2014). The Federal Reserve: inside monetary policy (No. 129).