A monetary policy that is characterized by low, or declining, interest rates. A loose credit policy is implemented by the Federal Reserve Board in order to increase growth and stimulate a slowing economy. If interest rates decrease too quickly, the economy may become over-heated and cause inflation. As a result, interest rates will rise.
Approximately every six weeks the Federal Reserve’s Open Market Committee (FOMC) meets to determine interest rate policy. The FOMC implements its interest rate policy by setting a target for the federal funds rate, which is the rate that it charges its member banks for short-term loans. The inverse of loose credit policy is a tight monetary policy, which is characterized by high interest rates. Also called easy money policy or accommodative money policy.