monetary policy

Actions taken by the Federal Reserve Board of Governors to control the money supply in an effort to help set the course of the U.S. economy. Monetary policy can be broadly classified as either expansionary or contractionary. Research has shown that investors can be well-served if they condition their return expectations by monitoring the Fed monetary environment. In general, investors should not expect high stock market returns during restrictive monetary policy periods. On the other hand, when the Fed is pursuing an expansive monetary policy, investors may want to revise their return expectations upward and take advantage of the Federal Reserve tailwind, particularly with respect to small stocks.