Monetary Policy Paper"Monetary policy is the most significant function of the Fed; it is probably the most widely used policy in macroeconomics" (Colander, 2004, p. 661). This paper will discuss and elaborate on the "Report on Monetary Policy" presented to Congress on February 11, 2003 and David Colander's concepts of macroeconomics. The state of the economy, the Federal Reserve's concerns, and the stated direction of recent monetary policy will also be discussed. “Monetary policy is a policy aimed at influencing the economy through changes in the reserves of the banking system which influence the supply of money and the availability of credit in the economy” (Colander, 2004, p. 659). Monetary policy is also refers to actions taken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic objectives The Federal Reserve Act of 1913 placed the responsibility for setting on the Federal Reserve monetary policy. The Federal Reserve controls the three instruments of monetary policy: open market operations, the discount rate, and holding reserves in any appreciable amount). , 2004, p.667). The discount rate is the interest rate charged commercial banks and other depository institutions on loans they receive from the regional Federal Reserve Bank's lending facility. Federal Reserve Banks offer three discount programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. Reserve requirements are the amount of funds a depository institution must hold in reserve against certain deposit liabilities. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, while the Federal Open Market Committee is responsible for the open market. operations. Using the three tools, the Federal Reserve influences the supply and demand of balances that depository institutions hold at Federal Reserve Banks and thereby alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. The state of the economy is independent of geopolitical and other uncertainties; the forces influencing demand this year appear, overall, favorable to a moderate strengthening of economic expansion.