Monetary policy can work at the best level when it is systematic and avoids short-sighted, seat-of-the-pants discretionary decision making that places un necessary importance on perceived short-term gains and they ignores larger long-term costs. Monetary policy operates in very uncertain environment. Different economist have different view
Monetary policy concerns the actions of a central bank or other regulatory authorities that determine the size and rate of growth of the Money supplyIn the United States, the Federal Reserve is in charge of MONETARY POLICY, and implements it primarily by performing operations that influence short-term interest rates.
From the end of the big Recession more than five years ago, the U.S. economy has grown at a disappointing 2.3 percent annualized rate. many times over that period, it appeared that growth was strengthening, but each time such hopes were subsequently unfulfilled. The real GDP growth accelerated over the last two years, rising at a 2.7 percent annual rate. The U.S. economy has made steady progress out of the very deep recession that followed the rolling financial market crisis of 2007-08, albeit much more slowly than had been hoped or anticipated. Economic slack—underutilized labor and capital resources–have been greatly reduced. The unemployment rate has fallen to a little over 5-1/2 percent, just above the upper end of estimates of the long run sustainable unemployment rate in the U.S. economy; and the utilization of industrial capacity is now around its long-run average. The inflation rate, abstracting from the effects of energy price declines, has moved up from very low levels toward the Federal Reserve’s 2 percent target, though its upward movement has stalled out and it still remains well below that level. At the end of 2013, the Fed was comfortable enough with the progress in putting people back to work and confident enough that progress would continue to announce that it would gradually phase down its purchases of long-term Treasury and mortgage backed securities. Sizeable gains in employment continued in 2014, and the Fed tapered off its purchases, ending them and capping its portfolio last October. But if one aspect of unconventional monetary policy in the U.S.—asset purchases—has been capped, another remains in place. Policy interest rates remain near zero and the Fed continues to try to steer the bond market by promising to keep them there for a while longer—to be “patient” in deciding when to begin raising rates. That decision is now being tugged in two different directions by actual and prospective developments in the U.S. economy.
