The monetary policy affects the economic and financial decisions of virtually all of us from workers to borrowers to investors. "If we want monetary policy to play its proper role in a true national economic reconstruction, the authentic task is to get the Fed to stop bouncing like a Chinese Ping-Pong ball, switching every few months between the inflationary effect of pumping far too much money into the economy and cramping, recessionary effect of supplying far to little" (Rukeyser 104). And, because the US is the largest economy in the world, its monetary policy also has significant economic and financial effects on other countries.

The object of monetary policy is to influence the performance of the economy, as reflected in such factors as inflation, economic output, and employment. It does so by affecting demand.

The monetary policy is conducted by the Federal Reserve System, the nation's central bank, and it influences demand mainly by raising and low

According to David Gilmore, a partner at Foreign Exchange Analytics, Essex, Conn "Any European Central Bank tightening will be swamped by much more from the Fed." Europe has double-digit unemployment and no inflation problem. An aspect of the problem is that the low euro will prompt new imports to U.S. The current account, as a result of that, decreases. This may alleviate the problem and slightly raise the value of the euro.

The next case that is about to be discussed involves the euro. To most people in the United States hearing the word Euro brings about blank stares. Ask this same question in England or another European country and it means bringing Europe together under one common currency. The Euro can be defined as the common monetary system by which the participating members of the European Community trade. Eleven countries Germany, France, Spain, Portugal, Ireland, Austria, the Netherlands, Belgium, Luxembourg, Finland and Italy comprise the European Economic Monetary Union that sets aside their national currency and adopts the Euro in 2002. A new National bank, based in Frankfurt Germany, will be constructed and the interest rates that control the economies of these nations will be in the hands of this new system. It is indeed a great experiment, being masterminded in Frankfurt, one that will be felt through out Europe as well as the rest of the world.

Recently the euro has been experiencing major plummets into new troughs. On Tuesday, April 25, the euro reached $0.9265. As a result of that a very important question arose: Should the ECB raise rates, or continue to exercise a policy of benign neglect?

One of the reasons that affect the bad performance of the euro compared to the dollar is the low level of the credibility of the European Central Bank. The European Central Bank determines the economic fate of the entire "Union". The merging of eleven currencies is a daunting and somewhat lethal task. The ECB is comprised of seventeen members, each having one vote within the governing council. What has most Europeans concerned is the ECB's secrecy of conducting business. There is no voting record nor will there be published minutes of the meeting that take place. Wim Duisenberg president of the ECB and a native Dutchman stated that he wanted the ECB to be one of the most open banks in the world.

Analysts are divided over the prospect of the rate cut. Many of them argue that this would not help at all. According to Claudio Piron, a treasury economist at Standard Chartered Bank in London, predicted the ECB would leave the rates unchanged on Thursday, because it realizes simples changes in interest rates won't affect the fundamentals. The U.S. economy is simply outperforming its European rival.

Some common words found in the essay are:
Fed Europe, Fed Treasury, York Fed, France Germany, Federal Reserve, Monetary Union, Bank London, Chinese Ping-Pong, Central Bank, Frankfurt Europe, monetary policy, real rates, funds rate, federal reserve, discount rate, central bank, rate inflation, market operations, european central bank, foreign exchange, reserves banking, supply reserves banking, reserves banking system, european economic monetary, lower real rates,
Approximate Word count = 2541
Approximate Pages = 10 (250 words per page double spaced)