Monetary and fiscal policies include factors regulating money supply and flows, regulation of financial processes, currency procedures, and mintingprinting of money. These policies and practices aim to establish a stable nature of the economy and economic development. It can be performed through various credit policies, market stabilization, currency management, etc. In the US, the monetary authorities are the Central Bank and the Federal Reserve. It is worth mentioning that paper currency in the United States has been used since 1933, before that, the standards of precious metals and gold were applied. The purpose is to analyze the US fiscal and monetary policies from different perspectives, identify problems, and propose changes that should be adopted.
A unique factor in the US is that the Treasury has significant influence over the country’s fiscal and monetary policy. The Treasury is directly involved in the printing and minting of the Federal Reserve system’s money (Callaghan, 2021). In turn, the Federal Reserve is largely concerned with lending policy by adjusting factors such as the interest rate and reserve ratio (Callaghan, 2021). Besides, it is also responsible for the size and rate of growth of the money supply, using the procedures for determining the purchase and sale of government bonds. In addition, the US Congress has established three main goals of monetary and fiscal policy, namely, the increase in employment, the reduction of interest rates, and the stabilization of prices.
Looking at fiscal and monetary policies from different perspectives, one can single out several aspects. First, the Federal Reserve System is witnessing uncertainty in decision-making in fiscal and monetary policy (Arestis & Sawyer, 2021). Due to the fact that information about costs, production, and prices is only available with a delay, growth or the actual state of the economy is only partially known (Arestis & Sawyer, 2021). From another perspective, it is not known exactly how the current adjustment in the federal funds rate will affect the growth in aggregate demand. Moreover, it isn’t easy to define it in terms of both the timing of its impact on the economy and the overall perspective.
From my own perspective, the main argument will be the fact that, at this stage, the government does not have an optimal mechanism for assessing internal economic processes. It is formulated by the fact that existing economic models can provide some data, however, they are subject to statistical error (Callaghan, 2021). Those who determine the fiscal and monetary policy do not have accurate data (ExcelSchool, 2022). Moreover, they receive data on the true state of the economy with delay, thus, one cannot assess the situation in a relevant way. The error can lead to the fact that, for example, the tightening of economic mechanisms on a certain scale will lead to a reaction that exceeds the norm. As a result, due to the delay, one will not be able to respond in time, which can only worsen the market situation.
Based on this analysis, one may conclude which areas are important in order to refine some of the mechanisms. Proposals for changes to be adopted include correcting the main factors negatively affecting monetary policy. Primarily, it is necessary to develop methods for leveling the delay in obtaining market data. It may consist of the application of artificial intelligence technologies to speed up the process of analyzing and synthesizing the necessary data. Artificial intelligence will help to find and predict changes in market processes faster, which will contribute to elaborating the strategy for developing fiscal and monetary policies in advance.
Arestis, P., & Sawyer, M. (2021). Economic policies for sustainability and resilience. Routledge.
Callaghan, B. A. (2021). Economic policy and the covid-19 crisis: The macroeconomic response in the US, Europe and East Asia. Routledge.