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in dec 2018 the fed funds rate is 22525 which...

Question: in dec 2018 the fed funds rate is 22525 which...

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In Dec, 2018 the fed funds rate is 2.25-2.5% which is the rate that banks charge each other to borrow reserves overnight. The fed controls the supply of bank reserves by buying or selling Treasury Securities. (Buying treasuries raises the supply of bank reserves and therefore lowers the fed funds rate) It is also gradually undoing quantitative easing (QE) which means shrinking its balance sheet which has assets of 4Trillion! The fed had expanded its balance sheet by creating money to buy long term bonds since the fed funds rate had fallen to 0% and the fed wanted more stimulus following the Great Recession of 2008-2009. In addition fiscal policy was stimulated by the Trump Tax Cuts and a big rise in government spending which could threaten inflation by stimulating economy. The fed has its hands full as inflation rises to its target of 2%! The fed follows the consumption price deflator which is still below 2%(But the CPI is rising at an annual rate of 2.2%) The fed is expected to keep interest rates steady and undo QE very very gradually. Do you think the fed policy is too tight, too loose or about right. More importantly Why? Please include a detailed explanation that backs up your answer. Do you think the fed will raise interest more in 2019? What is the neutral rate? Why is that important? Do you think the fed should use financial market or economic indicators for policy. Why?

bank reserves and therefore lowers the fed funds rate) It is also gradually undoing quantitative easing (QE) which means shrinking its balance sheet which has assets of 4Trillion! The fed had expanded its balance sheet by creating money to buy long term bonds since the fed funds rate had fallen to 0% and the fed wanted more stimulus following the Great Recession of 2008-2009. In addition fiscal policy was stimulated by the Trump Tax Cuts and a big rise in government spending which could threaten inflation by stimulating economy. The fed has its hands full as inflation rises to its target of 2%) The fed follows the consumption price deflator which is still below 2%(But the CPI is rising at an annual rate of 2.2%) The fed is expected to keep interest rates steady and undo QE very very gradually. Do you think the fed policy is too tight, too loose or about right. More importantly Why? Please include a detailed explanation that backs up your answer. Do you think the fed will raise interest more in 2019? What is the neutral rate? Why is that important? Do you think the fed should use financial market or economic indicators for policy, Why?

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