The Federal Reserve is planning to engage in a policy of increasing the interest rates. For the last several months, the euro and the Japanese yen have been depreciating against the dollar. To analyze the case at hand, we have to take a quick look at the U.S. monetary policy.
             The monetary policy affects the economic and financial decisions of virtually all of us from workers to borrowers to investors. "If we want monetary policy to play its proper role in a true national economic reconstruction, the authentic task is to get the Fed to stop bouncing like a Chinese Ping-Pong ball, switching every few months between the inflationary effect of pumping far too much money into the economy and cramping, recessionary effect of supplying far to little" (Rukeyser 104). And, because the US is the largest economy in the world, its monetary policy also has significant economic and financial effects on other countries.
             The object of monetary policy is to influence the performance of the economy, as reflected in such factors as inflation, economic output, and employment. It does so by affecting demand. The monetary policy is conducted by the Federal Reserve System, the nation's central bank, and it influences demand mainly by raising and lowering short-term interest rates. The Federal Reserve System (the Fed) is the nation's central bank. It was established by an Act of Congress in 1913 and consists of the seven members of the Board of Governors in Washington, DC and twelve Federal Reserve District Banks. The Congress structured the Fed to be independent within the government. What that means is although the Fed is accountable to the Congress, it is insulated from day-to-day political pressures. This reflects the conviction held in both the US and in many other countries that the people who control the country's money supply should be independent of the people who frame the government's spending decisions. The goals of US Monetary Poli...