How changes in the Federal Reserve’s monetary policies influence the global economy

Image source: CNBC

The central banking system of the United States, the Federal Reserve System (also known as the Fed) is one of the most influential central banks in the world. In other words, any changes in the roles, regulations, and responsibilities of this financial institution have direct effects on the global financial state.

The Fed’s monetary policies were designed to achieve three main objectives that primarily benefit the citizens of the state: maximizing levels of employment, price stabilization, and most importantly, moderating long-term interest rates.  Over the years, its reach has expanded as the U.S. Central Bank also focused on the supervision and regulation of banks, stabilizing the country’s financial system, and even providing financial services especially to national and foreign depository institutions.

Just like any nation’s central bank, the Fed’s implementation of specific monetary policies hold the power to control the country’s overall economy. However, given the influence of the U.S. dollar as a preeminent currency in the global market, these changes tend to cause ripples beyond the country’s economic boarder.  For this reason alone, investors and analysts always keep a close eye on every move that this central bank makes.

For instance, in the event of a global financial crisis such as the one in 2007, the FED’s response has proven to be crucial. Here, the American central bank and other leading central banks of the world focused on implementing new policies and programs to aid in the liquidity of financial institutions. Ultimately, these adjustments also helped improve the conditions of the financial markets.

Indeed, the most powerful central banks in the world, most especially the United States’ Fed, have proven to cause not just a national but a global impact on the economy. This is true nowadays that the global market has become highly sensitive to every move of the American central bankers and their future implications of the most respected global reserve currency, the U.S. dollars.

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