The Fed’s Monetary Policy During Greenspan’s Period

The Federal Reserve System, short for the Fed, is the central bank of the UnitedStates. It was founded to provide the nation with a safer, more flexible, and more stablemonetary and financial system. Monetary policy is the main policy tool of the Fed’smacro-control of the U.S. economy. The Federal Reserve controls the three tools ofmonetary policy—open market operations, the discount rate, and reserve requirementsto adjust the American economy. Since the1990s, with the changes and development inthe American economic and financial situation, open market operations becomes moreprominent for its advantage of initiative, flexibility and accuracy, become the main toolof monetary policy.In August1987, the13th chairman of the Federal Reserve Alan Greenspan tookoffice, the United States opened a18-year-old "Greenspan era". During his charge of theFed, the Fed conform to the requirements of the US economy and finance, take a seriesof new adjustment of monetary policy. On the intermediary target, giving up to increaseor decrease in the money supply shall exercise macro-control over the economy, changeto control the actual interest rate as the main means of the economic regulation. On theultimate goal, because inflation since the1990s have been broughtunder effective control and economic growth is attracting more attention, promotemoderate growth under low inflation became the ultimate goal of monetary policy.The fed’s monetary policy present a series of new characteristics after adjustment: first,distinctive "Greenspan characteristic"—his personal philosophy of the free marketmechanism, abhorrence of inflation, determined to maintain the Fed’s independence allreflect the distinctive personal features; second, the policy of prospective andopenness—the monetary policy effect of hysteresis characteristics make the fed’smonetary policy in order to really play its effectiveness will have to do it for a rainy day,nip in the bud. The monetary policy of openness and transparency can make it bettercommunicate with the market, guide the market to form a reasonable and possibleexpectation of interest rate change, to ensure market stability and reduce the economicturmoil; third, the interest rate policy of continuous fine-tuning—mild fine-tuning is toprevent the interest rate adjustment and change bring greater impact and shock on theU.S. economy and financial markets, to provide favorable conditions for the U.S. economy in a stable macroeconomic environment remain the growth.The monetary policy adjustment of the Fed, complied with the U.S. economy andfinancial development trend. The United States in the1990s created the longesteconomic expansion in history, and has realized the low inflation、low unemploymentand high economic growth"two low and one high" miracle. But the monetary policy isnot perfect. Because of the Fed’s connivance of the market, market crashed on the U.S.market experienced a burst in1995-2000five-year bull market. The U.S. economylong boom end of the tenth postwar recession. And the extremely low interest ratepolicy in2001-2004, provides a breeding ground for the real estate market bubble,eventually led to the “Subprime Crisis” broke out and quickly evolved into a globalfinancial tsunami. Thus, the Fed’s monetary policy during the Greenspan years frombefore the crisis "miracles" to "disaster".The evaluation of the Fed’s monetary policy for “the Greenspan era”, we shouldstand objective and impartial perspective with dialectical thinking to see, neither blindlycertainly nor blindly negative. We can not affirm its positive effect on the US economywhen it ignores the negative impact of the dotcom bubble, the real estate bubble fueledbrought. We should also see that the Fed as the central bank of America, itsindependence is only independent in his government. And the monetary policy as animportant tool for the U.S. government’s macro-control of the economy, it is only a tool,it can not solve all the problems of the economy.