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U.S. Monetary Policy and International Implications - Essay Example

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This paper talks that the effects of the headwinds experienced by the U.S. economy include different aspects of the country’s economy as well as the economy of other countries in the European continent. The effects of crisis have been intensified by the activities of the households and business groups…
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U.S. Monetary Policy and International Implications
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U.S. Monetary Policy and International Implications

Download file to see previous pages... e economy is growing seems insufficient to initiate and sustain considerably large up-gradation in the current job market, the FOMC has decided to take measures and modify its financial policies to bring significant changes in the employment levels. The rate of unemployment has been recorded at a high 7.8 percent in 2012, which is much higher than the projections made by analysts as the normal level of unemployment in the long run (Bernanke). There is a large level of slack in resources in the U.S. and it is being persistently maintained with high margins. This supports the restrained rates of inflation in the U.S. although there are short term fluctuations in prices of goods and services in the economy. Consumer price inflation at present shows lower than the expected level that is required to achieve the long run objective of 2 percent as set by the Federal Reserve (Press Release). Federal Reserve's Recent Policy Actions The monetary policy strategies of the Federal Reserve are steered by the dual mandate of promoting maximum level of employment and achieving stability in prices (Mayer 184). With the inadequate progress found in the US job markets coupled with subdued inflationary pressures, the Federal Open Market Committee (FOMC) has taken certain important actions in 2012 with the aim of providing “additional policy accommodation” (Bernanke). In September of 2012 information collected from reliable sources continued to let out weak signals regarding labor markets. There were also no sign of noteworthy inflation pressures. This induced the FOMC to take additional steps for making provisions of policy accommodation. The span of time over which the FOMC has kept its expectations “to maintain exceptionally low levels of the federal funds rate” (Bernanke) has...
This essay stresses that while the asset purchase program of the FOMC is aimed at increasing employment levels and improve job market conditions along with stabilizing the price of commodities in the U.S. economy, this policy action also has certain significant negative impacts. In my opinion, although the quantitative easing puts a positive influence on the economic performance of the country, the government has to increase subsidy on labor wages and increase demand for labor by the producers. An increase in wages would improve demand conditions in the economy which would increase productivity levels. While improving demand conditions in the economy, this process would take care of the problem of excess liquidity in the economy.
This paper makes a conclusion that mixed views have been provided in the debate revolving around the asset purchasing by the FOMC. In terms of efficiency of the quantitative easing program, most of the members of the Committee have agreed that this policy creates a meaningful result by easing financial circumstances thereby accelerating the process of economic growth. According to these observers, less credit constraints and lower rates of interest would increase investment by investors. On the other hand, some members of the Committee consider this policy as having a diminishing impact on the economic condition of the country. This is because quantitative easing lessens the financial stress in the short term, but, no consensus has yet been reached with regard to the long term effects of the assets purchasing policy. ...Download file to see next pagesRead More
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