« mainly macro: How to be a New Keynesian and an Old Keynesian at the same time | Main | Turn_Down_the_heat_Why_a_4_degree_centrigrade_warmer_world_must_be_avoided.pdf »

11/21/2013

Comments

Jacob Strauss

The minutes from the meeting noted that the "Fed is beginning to believe that they are near the end of their rope," which is interesting considering that the unemployment rate has been stuck just below 8% and that inflation is rising below the targeted rate. Perhaps the Fed is under pressure from politicians or people in the business sector, and is looking to scale back its efforts even if inflation is not a problem. It is also possible though that the Fed sees that it cannot do much more to lower the unemployment rate, especially when the Federal government's fiscal policy is pushing us in the opposite direction. In addition, banks have been storing much of the money from Fed purchases in their reserves, which means that continued expansion of the monetary base may not translate into a larger money supply or create a large multiplier effect. Overall, though, I think that the Fed should not ease its policies when the economy is still struggling and inflation is not a problem, because it is difficult to make a case for beginning a taper when the labor market is stagnant.

Matt_Kiser

This really shows that not only is their current strategy not being completely effective, but they don't really know what to do to fix it. It seems that they feel they need to do something whether it is tapering or reducing the interest rate paid on excess reserves. If they continue their strategy and nothing happens they would feel vulnerable, but if they do something and it works or doesn't work they can feel comfortable in that they tried to do something and didn't sit around while nothing happened. In these conditions monetary policy isn't very effective and something else needs to be done such as expansionary fiscal policy. The FOMC can only control a portion of a market. Something needs to be done to stimulate the other parts to make their strategy effective.

Jean Turlington

This article about the minutes of the meeting shows that the FED has a lot to think about in terms of the policies that it puts in place as it goes forward. The FED is in a situation that is not quite like any other situation that it has been in before, because of this no matter how much they study and analyze what they decide to do, there is no way that they will be able to know exactly the consequences. I understand that the FED might be concerned that if it continues much longer with its current policies they might get out of hand and cause inflation, especially when the article discusses the idea that one of the troubles with the current quantitative easing is that it is hard to get out of quantitative easing, a serious concern. Although I recognize the concerns of the FED, I do not think that tapering back is what is needed. The inflation rate is still below the target of 2%, and many banks are keeping excess reserves, limiting the effect of the multiplier that could result if the FED keeps pumping money into the economy. With the economy still struggling I do not think that the FED should ease up on its policies yet, especially when looking at those four Yellen Charts it is clear that the economy has not yet recovered and should be helped.

The comments to this entry are closed.