According to the last data on inflation, it has become clear that the Fed's monetary policy is too expansionary. The Fed was late in ending quantitative easing and raising interest rates. In the fourth quarter of 2021, nominal spending increased at an annual rate of 14.3 percent. The quick growth in spending pushed inflation well above the Fed's two percent goal. One of the mistakes was the intensive focus on closing the "output gap" between actual real GDP and potential GDP, which is extremely difficult to estimate. Consequently, the Fed should focus on other economic variables such as nominal GDP. The nominal GDP growth rate of 4 percent is consistent with the Fed's 2 percent inflation goal. Market players pay close attention to Powell's, who is the chairman of the Fed, comments. Fed officials seem to assume that financial markets desire as predictable a path for interest rates as possible. However, markets want is the assurance of a stable outcome for the economy. It does no good to hold interest rates at zero for an excessive period if that causes the broader economy to overheat.
Pandemic has brought a lot of uncertainty into the market and I feel due to more than 15% of workforce is leave their jobs its very hard to keep the market stable.
ReplyDeleteTo add on, the FED really has put the U.S. economy in a tough situation as high inflation has caused widespread panic across the country. I feel like the FED overprinted money in efforts to limit a recession and those actions have backfired and will cause inflation to only rise at higher rates. If the FED wants to limit the high rate of inflation, I believe that they must either raise interest rates by a high amount or raise taxes.
ReplyDeleteNow that the Fed has confirmed that they will be raising the interest rates to combat inflation. It will be interesting to see how high they raise them. Especially after their previous policy's have for the most part failed.
ReplyDeleteWith Russian invasion of Ukraine, there is widespread uncertainty amongst public. The Consumer Confidence index fell in February as well, so the Fed may change their decision to raise the interest rates.
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