The Federal Reserve and Monetary Policy
Central banks, including the Federal Reserve, are responsible for monetary policy, which refers to the actions taken by central banks to manage the money supply, and, consequently, interest rates. These activities work toward achieving macroeconomic goals like stable prices, low unemployment, and economic growth. In contrast, fiscal policy is under the purview of the government, which uses taxation and government spending to influence a country’s economy, with the objective of promoting sustainable economic growth, manage inflation and stabilize business cycles. In a free market economy, interest rates along the entire yield curve are a function of market factors, and the Federal Reserve uses monetary policy tools to influence interest rates.
Tariff Considerations for Investors
Tariffs are taxes, sometimes called duties, to be paid on a specific class of imports, and function like a tax on imported goods. Historically their purpose was to protect domestic producers, and often are compared to value-added-taxes (VAT). However, whereas a tariff is applied only to specific imports, a VAT is a broad consumption tax on both domestic and imported goods, and for imported goods you could have both. For example, tariffs are applied to the customs value of goods, and then a VAT is applied to the total value. What tariffs and taxes have in common is the government receives the proceeds, but where they differ is who pays.