"The interest rate targeting strategy employed by the Fed in the 1960s and 1970s led to procyclical money growth." True,false,or uncertain? Why?

Question

Quizplus · Accepted Answer

The statement "The interest rate targeting strategy employed by the Fed in the 1960s and 1970s led to procyclical money growth" can be considered true.
During the 1960s and 1970s, the Federal Reserve (the Fed) in the United States primarily focused on targeting interest rates to achieve its monetary policy objectives. This approach meant that the Fed would adjust the supply of money to maintain a specific target for the interest rate, which was often the federal funds rate—the rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
When the economy was in an expansion phase, the demand for loans would typically increase as businesses sought to invest and consumers looked to spend more. To prevent interest rates from rising due to this increased demand for money, the Fed would supply additional money into the banking system. This action would keep interest rates low, aligning with their target.
Conversely, during a recession or a contraction in the economy, the demand for loans would decrease. To prevent interest rates from falling below their target, the Fed would reduce the money supply.
This interest rate targeting strategy can lead to procyclical money growth because the Fed's actions would amplify the business cycle. In a booming economy, by increasing the money supply to keep interest rates low, the Fed would potentially fuel further expansion, possibly leading to inflationary pressures. In a downturn, by reducing the money supply to keep interest rates from falling, the Fed could exacerbate the recession by making it more expensive for businesses and consumers to borrow money.
However, it's important to note that while the interest rate targeting strategy can lead to procyclical money growth, the Fed's actual impact on the business cycle is influenced by a variety of factors, including the responsiveness of the economy to monetary policy, the Fed's ability to accurately assess economic conditions, and the time lags associated with the implementation and effects of monetary policy.
In summary, the interest rate targeting strategy employed by the Fed in the 1960s and 1970s is generally considered to have led to procyclical money growth, as the Fed's actions to maintain its interest rate targets tended to reinforce the prevailing economic trends, potentially exacerbating the natural business cycle.

"The Interest Rate Targeting Strategy Employed by the Fed in the 1960s