The Description of the Federal Reserve and Federal Open Market Committ Term Paper

The Description of the Federal Reserve and Federal Open Market Committee - Term Paper Example It has, therefore, maintained an inflation target of 2%, but it has been below the targeted value (Board of Governors of the Federal Reserve System). Fed is concerned of the level of inflation in the country. According to FOMC, the increase in the prices of oil has raised inflation and the expected inflation is targeted to be stable in the long run. To ensure that prices are stable, the Fed has to monitor the rate of inflation to minimize the general tendency of the price increase. The Federal Reserve aims to minimize unemployment by sustaining the current economic growth while maintaining stable prices. It achieves this by mopping out excess money supply when it purchases government securities and bonds. Moreover, Fed believes that unemployment challenges will be addressed by a comprehensive monetary policy. Through the open market operation, the Federal Reserve controls the buying and selling of securities by adjusting the interest rate. Increasing interest rate encourages people to buy while lowering discourages people to buy. However, in this scenario, the Fed has just used the mouth persuasion that it will buy mortgage-based securities and hold to long-term Treasury securities. In the ideal situation, Fed would have lowered the interest attached to these securities to ensure people sell back to avoid low return on investment. The Federal Reserve says that it will go on buying agency securities at a rate of $40 billion every month. This move helps in reducing the money supply from the housing sector to stabilize it after the collapse of the bubble in 2008. Moreover, the Fed aims to increase the grace period by which it holds treasury securities thereby decreases the frequency of injecting money to the economy. Fed also argues for reinventing agency debt along with mortgage securities. These measures Fed says are done to put prevent the rate of interest  rising thus helping the mortgage market and financial institutions.