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The Federal Reserve - Essay Example

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Federal Reserve Bank Name Instructor Date The Role of Fed in the Current Economy The financial crisis the country is trying to come out from was a creation of the Federal Reserve. However, the politician has been attacking each other and blaming the Bush administration for poor policy…
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Download file to see previous pages Therefore, in pursuing these functions Fed aim to stabilize prices and attain maximum employment. The Federal Reserve tightened it policy after the country suffered from a 2008-2010 financial crisis. Moreover, the bank increased regulations in the financial sector to check on bank lending behavior that caused the housing bubble to burst. These measures have achieved tremendously as indicated in the recent Beige Book. The economy at a national level is growing, and this shows that the country is on the path out of the financial crisis. The Board says that consumer confidence has increased, and business buoyancy is rising too. The Beige Book (2013) reported that the national economic conditions have expanded during the month of September to October. All the twelve Federal Districts had similar rates of growth, though some like Richmond, Philadelphia, Kansas and Chicago showed slowed growth rate as compared to earlier reports. Moreover, the Districts were optimistic of growth in future economics behaviors, but they also feared uncertainty as a result of increased debate on the debt ceiling and government shutdown. The country has increased consumer spending and people are travelling more in all most all the districts. Furthermore, tourism has also increased, and businesses are now growing. This can be attributed to increased payrolls in many Districts. The Fed reports that there is increased demand for manufacturing activities and nonfinancial services. Residential construction has resumed, and it is increasing pace by pace. The lending rate has remained modest, and there was little change in the financial balances. The agricultural sector has been affected, and most districts reported that drought impacted the sector. The energy sector has expanded, but there has been reduced production of coal. Therefore, the overall price condition and wage was stable and without pressure (Board of Governors of the Federal Reserve System, 2013). Economic Indicators That Guide In Stabilizing the Economy Economic indicators are voluminous statistics of the economic conditions that are used by the government in measuring and evaluating the growth of the economy. There are many economic indicators and each function differently from the other. Some indicators have short term effects on the economy while others have short term and long term effects. These indicators include real gross domestic product, money supply, consumer price index, consumer confidence, employment rate and housing starts. Real GDP help the Federal Reserve to know how it will utilize monetary policies to the changes in the economic conditions. Its shows the market cost of a countries goods market produced at the current period. Real GDP shows the country’s wealth by demonstrating the returns on capital and the growth of profit in businesses and service industries. Real GDP, therefore, measures the well being of a country economic activity. Consequently, Fed must use tight monetary policies to ensure that the interest rate is not below the set target of 2%. Low interest rates render the Federal Reserve policies ineffective in controlling the money supply (Labonte, 2013). Employment is the other economic indicator the Federal Reserve ought to address to maintain the path of economic growth. The employments statistics are derived from the payrolls, retail trade, construction and manufacturing and are used in determining the level of unemployment and the well being of the country. Increase in wages enhances ...Download file to see next pagesRead More
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