US Federal Reserve normalising its monetary policy stance

Abstract

The US economy has recovered from the financial crisis. The unemployment rate in the United States has already fallen to the level prevailing before the financial crisis, and inflation has risen to a point close to the 2% targeted by the central bank, the Federal Reserve (Fed). The Fed has been in the process of winding down the unconventional monetary policies that it pursued during the financial crisis. It gradually ceased its net purchases of securities during 2014, and in December 2015 took its first decision to raise the federal funds rate. In September 2017, the Fed decided to begin in October to reduce the holdings of securities on its balance sheet that it had purchased in three different securities purchase programmes. Although, initially, holding securities was seen as a temporary measure, in public debate it has been suggested that there are grounds for leaving the Fed’s balance sheet permanently above its pre-crisis level.