Should Feds Continue with Expansionary Monetary Policy or...

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†¦show more content†¦Based on his statement, the cyclical unemployment will lead to structural unemployment in a long period of time. When this becomes structural unemployment, unemployed may lose the skills over time, causing them to be less committed to the labor force and the economy. In order to solve this situation, the Fed has to consider the unemployment rate. If the unemployment rate rises, then Fed will need to think of an exit from expansionary policy. But if the unemployment rates decreases, then the Fed can stick to its policy. As for the other concerns, some were worried the inflation rate caused by the expansionary policy. They are afraid that it might unleash higher inflation and that inflationary expectations are bound to jump at any time. By solving this situation, the Fed had to closely monitor the inflation rate. If it is below the expectation, then Fed can stick with the policy. If not, Fed will have to consider about the exit strategy. Changes in interest rate will impact on the economy. It can affect the consumption spending, the inflation rate, the unemployment and employment rate, and the GDP. Consumption spending is affected by interest rate is because when the interest rate is low, people will be willing to borrow money from bank and spend it on goods or services, allowing the spending to go up. When the spending goes up, the inflation and GDP will increase. Then,Show MoreRelatedThe Economic Crisis Of Western Central Banks Essay2433 Words   |  10 Pagesin 2008, western central banks have since applied a series of unconventional monetary policies besides normal ones. One of the characteristics of the unconventional policies is the intended near-to-zero interest rates, so those policies are also named Zero Interest Rate Policies (ZIRP). ZIRP are designed to help the financial market escape from the â€Å"liquidity trap†, a situation in which normal expansionary monetary policies fail to decrease intere st rates below zero and thus become ineffective. WithoutRead MoreThe Risk Associated With Currency Exposure1610 Words   |  7 Pagesfluctuations in exchange rates and how that risk relates to our organization; Coca-Cola Enterprises Inc. (CCE). Serving customers for the last 128 years, our products are now available in more than 200 countries around the world. As our global presence continues to grow, so too does our exposure to fluctuations in currencies other than our base currency, the US dollar. Worldwide, we own assets and owe liabilities, earn revenues and pay expenses in 71 foreign currencies . As such, it is now more importantRead MoreEurope Economic Crisis55278 Words   |  222 Pagesotherwise indicated, the texts are published under the responsibility of the Directorate-General for Economic and Financial Affairs of the European Commission, BU24, B-1049 Brussels, to which enquiries other than those related to sales and subscriptions should be addressed. LEGAL NOTICE Neither the European Commission nor any person acting on its behalf may be held responsible for the use which may be made of the information contained in this publication, or for any errors which, despite careful preparation