Monetary Policy

When the Federal Reserve buys or sells Treasury notes and other securities from its member banks, it's engaging in what's known as Open Market Operations (OMO). OMO serves as one of the major tools the Fed uses to raise or lower interest rates.

Expansionary monetary policy is when a central bank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases demand. It boosts economic growth. It lowers the value of the currency, thereby decreasing the exchange rate. It is the opposite of contractionary monetary policy.

Quantitative easing is a nontraditional technique used by the Federal Reserve to stimulate the economy in times of crisis. It increases the money supply and lowers long-term interest rates, making it easier for banks to lend. This in turn spurs economic growth.

Restrictive monetary policy, also known as contractionary monetary policy, is how central banks constrict demand to slow economic growth and inflation. It's called restrictive because the banks restrict liquidity. It reduces the amount of money and credit that banks can lend, and lowers the money supply by making loans, credit cards, and mortgages more expensive

Deflation occurs when asset and consumer prices fall over time. While this may seem like a great thing for shoppers, the actual cause of widespread deflation is a long-term drop in demand.

Inflation reduces the purchasing power of each unit of currency, which leads to increases in the prices of goods and services over time. It's an economics term that means you have to spend more to fill your gas tank, buy a gallon of milk, or get a haircut. In other words, it increases your cost of living.

The reserve requirement is the total amount of funds a bank must have on hand each night. It is a percentage of the bank's deposits. The nation's central bank sets the percentage rate.

The U.S. money supply is all the physical cash in circulation throughout the nation, as well as the money held in checking accounts and savings accounts. It does not include other forms of wealth, such as long-term investments, home equity, or physical assets that must be sold to convert to cash. It also does not include various forms of credit, such as loans, mortgages, and credit cards. 

The Beige Book is a Federal Reserve survey of the nation's economic conditions. Each of its 12 banking districts discuss how fast the economy is growing in their areas. That includes how difficult or easy it is to hire. It also addresses the general pace of business activity.