Project #32772 - Macroeconomics

1st article

 

 

According to this article that I found on the Federal Reserve website, we can tell that the Federal Open market committee is determined to helping the economy reach max employment.  Moreover, their goals are to be as clearly stated as possible to the public, and wise decision making by households and firms alike is very much encouraged.

 

 

As we know, interest rates, as well as inflation and unemployment tend to fluctuate for a myriad of factors.  Some is environmental, some relates to a rapid spur ofincreased spending by consumers and businesses, or loans made by banks.  In this case, as stated by the article, inflation is, in the long run, determined by themonetary policy of the Federal Reserve.  The fed wants to keep their goals regarding inflation straightforward and simple, and to factor in the rates of unemployment in thelong run.

 

 

Long term estimates for unemployment, from what the article showed, seems to be between 5.2%-and 5.8% in the long term, according to some of the most recent forecasts by the FOMC members.  How accurate this is may be difficult to predict as of now.  Furthermore, it seems that the inflation rate the fed is aiming for is around 2%, which would imply a more expansionary monetary policy, meaning in return there would be a decrease in loanable funds.  This is when things are complementary to the circumstances at a given time.  If they ceased to be complimentary, the fed may use a few more Restrictive monetary policy techniques to balance things out, meaning the reserve ratio would be increased.

 

 

 

 

 

2nd

 

 

Based on comparing the current and historical federal funds rate we could determine that the fed is currently implementing an expansionary monetary policy. Currently the targeted federal funds rate is 0.25% and has been so since December of 2008. At a brief period in December of 2008 the targeted federal funds rate was 0.00% but later bounced back up to 0.25%, besides the brief rate at 0.00%, 0.25% is the lowest targeted rate ever recorded, the second lowest is 1.0% and at times the target rate gets as high as 8.00%.

 

 

 

 

 

With such a low and long lasting target federal funds rate, the fed is trying to lower interest rates that banks charge business firms and households for loans they make. This will create more demand for these loans, which firms will use to invest in capital and households will use to buy durable goods, this creates more autonomousspending; this allows more households to see increased wages. In the short run this expands the economy, but our economy has been slow to gain traction so they have had to implement expansionary monetary policy for going on 6 years now (this assumption is based simply on the target federal funds rate).

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