Monetary policy is the backbone of economic and political stability, but here’s the thing some people have greatly recognized: it doesn’t always work. Sometimes, monetary policy isn’t the most effective measure of control and stability in the real world, and there are a number of factors that can define that ineffectiveness. Throughout this article, we will focus on what currently defines monetary policy, what the current flaws within monetary policy are, and the answer to the question of whether the US is overusing it.

Current Monetary Policy Practices

Currently, the US engages in these specific types of monetary policy practices:

• Interest Rate Adjustments: The Federal Reserve primarily adjusts the target range for the federal funds rate, which is the rate banks charge each other for overnight lending. To continue managing this rate, administered rates are set by the Federal Reserve, those of which include interests on reserve balances and discount rates.
• Open Market Operations: This specific type of operation involves buying and selling government securities to influecne the money supply. Buying will increase the money supply, whereas selling will decrease the money supply. In short, money supply refers to all the money and liquid instruments in a country’s economy.
• Liquidity Backstops: The Fed provides tools like the discount window (eligible financial institutions can borrow money directly from their regional Federal Reserve Bank), Standing Repo Facility (Fed’s account for providing overnight liquidity to eligible counterparties), and others to address funding market pressures and maintain financial stability.

Problems With The Current Monetary Policies

While we do witness some success with monetary policies, especially the current ones, there are also some flaws that exist:

• Delayed Effects: Monetary policy can lag. The effects that people who enforce monetary policy wish to see come true sometimes don’t after lengthy periods of time. This can in turn impact the economy as a whole, primarily because if the monetary policy were to improve the economy and its effects lag, the economy could continue to sink in whatever disaster it was already in.
• Risk of Hyperinflation: Setting interest rates too low can in fact cause hyperinflation. This is because if interest rates become low, then there won’t be much returns for banks and institutions to operate properly. Thus, to offset this consequence, institutions will need to significantly raise prices.
• Political Pressue and Conflicting Objectives: Central banks may face pressure from governments to prioritize short-term political goals over long-term economic stability, especially when there are conflicting objectives like maintaining low inflation and high employment.

Is The US Overusing Monetary Policy?

So here’s the real question: is the US overusing monetary policy, and if so, how do we lessen that overuse? Well, the US overusing policy is a mater of ongoing debate, and the real answer is this: the US sometimes does. They don’t completely overuse it, but there are certain scenarios where they end up using more. So how can we mitigate that overuse? We can start by conducting thorough research of the economic landscape; doing so can allow for a necessary evaluation of what monetary policies should work and then should work. Next, we need to focus on deliberate collaboration: work with intermediaries and other parties to understand how to mitigaet economic issues. Because here’s the thing: even though there are opposing sides, the goal mostly remains the same. Mostly.

Sources

https://www.newyorkfed.org/newsevents/speeches/2025/per250305