Wednesday, May 1, 2013

Federal Reserve Sticks With Stimulus

http://money.cnn.com/2013/05/01/news/economy/federal-reserve-stimulus/index.html?iid=SF_E_Lead

This article tells of how the FED will continue to purchase $85 billion a month in mortgage-backed securities and Treasuries to stimulate spending in the economy and keep long-term interest rates low. They are doing this to combat the high unemployment rate and low inflation, which were suggested to be the result of cuts in government sopending.

Of course they will slow down or speed up as needed in response to economic activity, but the central bank is quite a ways away from attaining their goal of an unemployment rate of 6.5% or inflation higher than 2.5% a year. The unemployment rate was 7.6% as of late March and inflation is rising only 1% year to year.

The FED's actions have been appreciated in the stock market, stocks having recovered since the crisis, but there is some controversy that the plans will either backfire, causing vigorous rising inflation, or simply not work as Congress tries to combat debt. It was suggested by only one member of the FED that their decisions could potentially cause future economic problems/imbalances.

I think the FED is making a good decision to try and balance out the government spending cuts and to lower the unemployment rate, but is the trade-off (a possible blow to the future) more debtramental than the benefit is helpful?

2 comments:

  1. If we are trying to speed up our recovering economy, I think that this is the Fed's only option. Especially when the government is cutting spending, increasing the money supply is vital. This will hopefully increase aggregate demand in the short run, which could help reduce unemployment. In addition, this should eventually increase prices, which will hopefully allow them to reach the goal of 2.5% inflation.

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  2. This really is the only option left for the fed to try and keep our economy afloat. Hopefully this will lead to increased AD and make consumers more confident in our economy. If they become more confident i believe all of our woes will disappear and i don't believe that it will cause vigorous rising inflation

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