Should Feds Continue with Expansionary Monetary Policy or Exit Strategy?

opinion Essay
850 words
850 words

Over the past few years, the Fed had been trying to heal the economy from the recession by lowering the interest rate near zero in order to raise the inflation, increasing the price of housing and household wealth. This will encourage more people to buy products or services, causing an increase in consumers spending. Based on the data given by the U.S. Department of Commerce today, the economy is now healing from the recession with the expansionary monetary policy. However, some people argue that it takes too long for the recovery to happen and suggests that it is time for the Fed to come out with an exit strategy. However, I think the Fed should stick with its policy because it manages to improve the economy. Therefore, I think the Fed should stay with their strategies until there is a clear evidence of an overwhelming economy before thinking about an exit strategy.

According to the U.S. Department of Commerce, the Real GDP increases at a rate of 3.6 percent in the third quarter of 2013. Also, the Federal Reserve Economic Data (FRED) announces that the unemployment rate has reached its lowest state at 7 percent since 2009. As for the inflation rate, the U.S. government published the latest annual inflation rate, which is 1 percent. Compare these data to the 2008-2009 recessions, the GDP growth rate for 2008 is -2.7 percent and -5.4 percent for 2009. As for the unemployment rate for 2008-2009 recessions, the peak was at 10 percent. For inflation rate during the 2008-2009 recessions, the base is at -2.1 percent. In contrast with the previous recessions in 2001, the 2008-2009 recessions drop the private consumption, lowering the consumer confident. Because of this, the recovery period will take longer than the previous recessions....

... middle of paper ...

... said that Fed’s economic models should focus on global trade. Based on his observation, housing should not be priority. Even though it is part of the economy, it can only give out one signal. However, there are many other factors that will give a broader, cross section data such as consumers, business, from trade, and from export. By focusing on the global trade, it will allow the Fed to see all the signals from all aspects affected by the policy.

Because of all the evidences show that the economy is recovery from the 2008-2009 recessions, the Fed should stick with the expansionary monetary policy. Although the process of healing the economy is slow, there is still progress during the recovery period. However, if the inflation rate passes the expectation or any sign of an overheated economy is presented, the Fed will need to start considering the exit strategy.

In this essay, the author

  • Opines that the fed should stay with its policy until there is evidence of an overwhelming economy before thinking about an exit strategy.
  • Compares the gdp growth rate for 2008-2009 recessions, which is -2.7 percent, with the unemployment rate of 10 percent.
  • Explains that some are concerned about the long run effect of the unemployment rate, one of them which might cause a permanent damage on the economy based on hysteresis.
  • Explains that changes in interest rates affect consumption spending, inflation, unemployment, employment, and gdp. if the fed decides to use an exit strategy to increase rates soon, it has two ways to change the interest rate.
  • Opines that the fed's economic models should focus on global trade.
  • Opines that the fed should stick with expansionary monetary policy because the economy is recovering from the 2008-2009 recessions.
Get Access