Tight Monetary Policy

AAA

DEFINITION of 'Tight Monetary Policy'

A course of action undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing too quickly, or to curb inflation when it is rising too fast. The Fed will "make money tight" by raising short-term interest rates (also known as the Fed funds, or discount rate), which increases the cost of borrowing and effectively reduces its attractiveness.

INVESTOPEDIA EXPLAINS 'Tight Monetary Policy'

The Fed can sell Treasuries on the open market in order to absorb some extra capital during a tight monetary policy. This effectively takes capital out of the open markets as the Fed takes in funds from the sale with the promise of paying the amount back with interest. The Fed will often look at tightening monetary policy during times of strong economic growth.

RELATED TERMS
  1. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  2. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  3. Operation Twist

    The name given to a Federal Reserve monetary policy operation ...
  4. Policy Mix

    A government's combined use of fiscal policy and monetary policy ...
  5. Zero-Bound

    A situation that occurs when the Federal Reserve has lowered ...
  6. Net Borrowed Reserves

    A statistic released in weekly Federal Reserve data showing the ...
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  3. Forex Education

    Why Interest Rates Matter For Forex Traders

    Central banks' rate changes are one of the biggest influences on the forex market.
  4. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  5. Even though inflation currently seems tame, it's still the worst enemy of retirees. Here are some tips to reduce its impact.
    Professionals

    Tips For Managing Inflation In Retirement

    Even though inflation currently seems tame, it's still the worst enemy of retirees. Here are some tips to reduce its impact.
  6. There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
    Economics

    Most Powerful And Influential Public Companies In 3 Metrics

    There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
  7. The annual percentage rate, or APR, is the cost per year of borrowing.
    Credit & Loans

    What's the Annual Percentage Rate (APR)?

    The annual percentage rate, or APR, is the cost per year of borrowing. By law, all financial institutions must show customers the APR of a loan or credit card, which clearly indicates the real ...
  8. Simple interest is a quick method of calculating the interest charged on a loan.
    Investing

    Simple Interest

    Simple interest is a quick method of calculating the interest charged on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods.
  9. A look at China's plan to control population growth and how it could change going forward.
    Economics

    China's One-Child Policy Explained

    A look at China's plan to control population growth and how it could change going forward.
  10. Savings

    How does a cost of living adjustment (COLA) affect my salary?

    Learn how employers add cost of living adjustments to workers' salaries to offset the effects of inflation or to aid in a lateral move.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center