tight credit

Monetary policy that is characterized by high or increasing interest rates. The Federal Reserve Board uses a tight monetary policy in order to contain inflation, which can be very damaging to an economy. Approximately every six weeks, the Federal Reserve’s Open Market Committee (FOMC) meets to determine interest rate policy. The FOMC implements its interest rates policy by setting a target rate for the federal funds rate, which is the rate that it charges its member banks for short-term loans. Then the Federal Reserve conducts open market operations by selling  or buying Treasury securities, which has the effect of increasing or reducing funds from banks and thus influencing the price, or interest rates, of loans. The inverse of tight credit is loose credit, or an easy monetary policy, that is characterized by low interest rates intended to stimulate economic growth in a slowing economy.