The following is the text of a handy little card distributed to all new LBO subscribers. It was written in May 1994 by Doug Henwood, editor and publisher. They operate by changing the level of interest rates and the supply of money and credit.
Theorists differ on just how powerful CBs are.
Strict monetarists picture CBs as directing nearly everything economic through their monetary control panels. At these meetings, the FOMC decides on a target level for short-term interest rates and a desired rate of money supply growth. These decisions are published in highly sanitized form six weeks after their making. In the interim, overpaid Wall Street analysts try to decode the Fed's policy moves. The FOMC's policy targets are transmitted to the trading desk at the Fed's New York branch, which translates broad strategy into daily reality by either buying or selling appropriate amounts of government bonds, thereby providing or denying reserves to the banking system.