For Now, Fed Succeeding by Doing Nothing - Essay Example

The Logic of For Now, Fed Succeeds by Doing Nothing In this article, John Schoen is commenting on the rate of interests that have been kept constant by the central bank in the wake of the growing inflation. While inflation is increasing, interest rates had been expected to grow but the no change policy by the Fed is raising questions and comments amongst the Fed watchers. According to Central Bank, inflation rate is still very high in the country. The key question that Schoen is addressing in the article is whether the rising inflation is leading the country into stagflation.

Stagflation occurs when inflation is high and the economy is growing at a slow rate. The decreasing gross domestic product and the increasing bond rate is an indication the stagflation may be the next condition of the economy. In a report released by the commerce department showed that GDP has decreased to 2.2 percent, from its original 5.6 percent (Schoen, 2006). Following the speculations of various Fed watchers, Schoen has come up with the conclusion that the economy at this moment can move in any direction given the corporate landscape where companies are paying good dividends and at the same time the stock prices need to be improved.

In order for us to understand Schoen’s direction of thinking, we have to understand how interest rates impact the economy in general and how the Feds have been able to control inflation and initiate economic growth. However, we can question the fact that the stable interest rates can also lead to stagflation given the condition of the economy. The stable interest rate may not have the desired effect as inflation continues to increase. If we take this line of reasoning seriously, we will realize that this is a time where the corporate world can come to help by developing strategies to improve stock prices.

If we fail to take this line of reasoning seriously, we may go speculating the direction of the economy and grow pessimistic at the forecasts being released. The author, in this article, is presenting his own conclusion of the speculation of the Fed watchers. ReferencesSchoen, John, W. For now, Feds succeed doing nothing, MSNBC, 2006. Retrieved from http://www.msnbc.msn.com/id/15401901/ns/business-eye_on_the_economy/t/now-fed-succeeding-doing-nothing/