Tuesday, April 5, 2011
Focus on Inflation
The article says that the Federal Reserve should focus on controlling inflation, not the high unemployment rate that has been plaguing the United States ever since the recession. By looking at the Fed's historical actions, one can see that the inflation rate has been the main focus until recently, when the issue of trying to get the country to full employment began to creep into the Fed's agenda. In fact, the actions needed to create new jobs may drive up the inflation rate. The article argues that by focusing on controlling inflation, job creation will follow as the economy and rates remain stable.
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6 comments:
I agree. I believe that the main focus should be on maintaining a stable inflation rate. By doing this, firms will be more likely to create jobs because the economy is stable. It is nearly impossible, and inefficient, to focus on stabilizing inflation and raising employment. The two contradict each other and would only make things worse if focused on together.
I also agree that the Fed's primary concentration should shift from the unemployment rate to the inflation rate. I point to the growing clout of the German economy, one typified by an intense focus on anti-inflationary policies, as an example for the US.
I agree, you cannot change everything at once, you must focus on one important factor, in this case the inflation rate. By doing so they will be able to stabilize inflation which in return should promote growth and increase jobs in the economy. A good and efficient focus on the inflation rate should help boost the economy.
A certain degree of inflation can actually solve the problem of unemployment. Now the federal government just prints money to cover its deficit. Unemployment rate is falling now, up to about 8.6%. It is a good sign that the economy is on its to the recovery.
By focusing on inflation, and keeping prices stable, job growth will follow. On the contrary, if inflation is ignored and inflation rises, then unemployment will rise at the same time. This article has an interesting comparison with the high inflation in the 70's and early 80's that was dealt with through an extremely high federal funds rate (20%). This is exactly the opposite of what we need to stimulate our economy at its current state and if a similar scenario ever occurred, it would be detrimental to the U.S. economy.
This is going to be difficult for the Federal Reserve to focus on inflation while maintaining the unemployment rate low. Isn't it the Federal government's job to take care of the unemployment rate through fiscal policies? I believe the Fed is going an expectational job at focusing the inflation rate in an effort to stabilize the prices. But people can't expect the Fed to correct everything because the Fed cannot foresee the future.
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