Monetary policy

Monetary policy covers the tools a central bank uses to meet its objectives — in the United States, a dual legal mandate: price stability (a 2% inflation target) and maximum employment. The main lever is the policy rate; alongside it are quantitative easing/tightening (expanding or shrinking the bond balance sheet) and forward guidance (steering expectations through communication). A restrictive policy (high rates) curbs inflation at the cost of growth; an accommodative policy (low rates) supports activity at the risk of reigniting it. See hawkish / dovish for the two stances.