Several years ago, with the onset of the economic and financial crisis (2008-2009), the Federal Reserve took exceptional measures in order to combat the effects of the crisis on the American economy. These measures translated into an expansionary policy that included pumping money in the economy and purchasing assets that were in trouble. Through its expansionary work, the government was able to balance some of the effects of the crisis.
The question that seems to be on everybody’s mind today is where does it all end? One thing everyone can agree on is that this type of expansionary policy cannot last forever. The United States economy functions as a free market economy where the laws of supply and demand govern the market. A continuous and permanent intervention of the Federal Reserve is neither possible, nor healthy. Nobody can agree on, however, is when the expansionary approach should stop: now, in the near future, in the medium or even long-term?
The question can only be answered through a current assessment of the economy. The economy has not yet entered a phase of sustained recovery, despite some positive signs, many of the figures remain dwindling, and as a consequence, the expansionary approach should be continued for a certain amount of time. Unemployment is still significant and economic growth remains small. This article also proposes that the Federal Reserve put aside, for a while, its continuous focus on inflation, and look into some of the measures that need to be taken in order to combat the growing unemployment.
A useful place to start is the Federal Reserve’s own position on this topic, as expressed by Janet L. Yellen in a testimony before the Senate Banking Committee; she stated that time for an exit had not co...
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...arted, it should function on its own, so some of the Fed’s policy should also be directed to what comes after.
Bibliography
1. Krugman, Paul. The Conscience of a Liberal. The New York Times. November 2013. On the Internet at http://krugman.blogs.nytimes.com/2013/11/25/nowhere-near-the-exit/. Last retrieved on December 13, 2013
2. Mankiw, Gregory. In Fed Policy, the Exit Music May Be Hard to Hear. The New York Times. November 2013. On the Internet at http://www.nytimes.com/2013/11/24/business/in-fed-policy-the-exit-music-may-be-hard-to-hear.html?_r=0. Last retrieved on December 13, 2013
3. Spicer, Jonathan, Lange, Jason. Fed officials signal next policy battle: rate guidance. Global Post. On the Internet at http://www.globalpost.com/dispatch/news/thomson-reuters/131121/fed-officials-signal-next-policy-battle-rate-guidance. Last retrieved on December 13, 2013
Some economists blame the Federal Reserve’s inaccurate monetary policy. The easy-monetary policy since 2001 was deviating from the Taylor rule. (Alex, 2013)
In this paper I will explain which of the monetary tools available to the Federal Reserve are most often used and the reasons for that. I will also describe how expansionary activated conducted by the Federal Reserve impact credit avilaiblilty, the money supply, interest rates and security prices, and to conclude I will show the result of the transactions in the form of a balance sheet supposing the Federal Reserve
The Federal Reserve and Macroeconomic Factors Introduction The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession.
In conclusion, the current macroeconomic situation in the United States is characterized by moderate growth because of better economic conditions that were brought by the events of 2013. The country has experienced moderate economic growth since the 2008 global recession but has shown real signs of momentum. While the country is not concerned about recession or inflation, the rate of unemployment is still a major challenge despite improved consumer and business confidence. As a result, the Federal Open Market Committee or Federal Reserve System needs to adopt fiscal and monetary policy initiatives that help address the unemployment issue and promote high economic growth.
Since the onset of the Federal Reserve we have not gone into a major depression, and over a course of time there will be times when our economy will peak and boom and the Fed will feel that it is time to slow the economy by raising the rates.
What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy. With the large amount of debt the economy faced the Federal Reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy. The banks that survived took precautionary measures, making it difficult for businesses and consumers to borrow (Love, 2011). Thus leading to businesses failing and less jobs being created. The large amount of debt had also taken its toll on the job market. Between 2007 and 2009 employment dropped by 8 million workers, causing the unemployment rate to go from 4.7 percent to 10 percent (McConnell, 2012).
Bullock, Alan, and Maurice Shock, eds. The Liberal Tradition: From Fox to Keynes. Clarendon Press, 1967.
Mishkin. F. C. (2009). The Financial Crisis and the Federal Reserve. NBER Macroeconomics Annual, 24, 495-508
Before we begin our investigation, it is imperative that we understand the historical role of the central bank in the United States. Examining the traditional motives of this institution over time will help the reader observe a direct correlation between it and its ability to manipulate an economy. To start, I will examine one of its central policies...
Meltzer, Allan. Learning about Policy from Federal Reserve History. Rep. Social Science Research Network, 04 Feb.
The recent global financial crisis that affected not only America but also Europe and other parts of the world resulted in massive unemployment. This is due to the high costs of operation that many corporations faced forcing them to cut on labor costs. There is need for European government interventions to avert this social crisis and prevent the occurrence of such a crisis in future. Unemployment has hit the service sector harder than other sectors with the following being the most affected: automotive, construction, tourism, finance and real estate. The global financial crisis has also increased consumer prices thus pushing inflation. According to McCathie, “the increase in July consumer prices to 1.7 per cent pushed inflation in the currency bloc up towards the European Central Bank’s target of keeping inflation at below, but close to 2 per cent. Eurozone consumer prices had stood at 1.4 per cent in June” (McCathie, 2010).
Here's the scenario: "Recent global developments have pushed the economy into a slump. Industrial production is sluggish and it has become difficult to stimulate demand. The Real GDP is slipping and though inflation looks to be under control, unemployment seems to be soaring. As the Chairman of the Federal Reserve appointed by the President of Oval Office, an effective control of the money supply has to be done.
Inflation and unemployment are two key elements when evaluating a whole economy and it is also easy to get those figures from National Bureau of Statistics when you want to evaluate it. However, the relationship between them is a controversial topic, which has been debated by economists for decades. From some famous economists such as Paul Samuelson, Milton Freidman etc to some infamous economists, this topic received a lot of attention. However, it is this debate that makes the thinking about it evolve. In this essay, the controversial topic will be discussed by viewing different economists’ opinions on that according to time sequencing. But before started, it is worthy getting a better understanding of the terms, inflation and unemployment.
The economy in the United States was recently experiencing what is now called the Great Recession which occurred from December of 2007 to June of 2009. During this recession we experienced a decrease in our gross domestic product and experienced an increase to our unemployment. Since 2003 the American economy has been seen inflation rates as low as .1% in 2008 and as high as 4.1% in 2007. Rates such as these detail the increase and decrease in prices of products throughout the economy and has a considerable influence on the supply and demand of goods from cars to bread. In the past ten years inflation rates have continually seen positive values w...
It is difficult for government to achieve all the macroeconomics objectives at the same time. Conflicts between macroeconomics objectives means a policy irritating aggregate demand may reduce unemployment in the short term but launch a period of higher inflation and exacerbate the current account of the balance of payments which can also dividend into main objectives and additional objectives (N. T. Macdonald,