CNBC reported that the United States as of August, had recorded their biggest drop in import prices in the past seven months, which can be attributed to two variables. The reasons for the decline as stated by CNBC was due to the decrease in petroleum prices, as well as the wide variety of other goods. This can be attributed to a strong U.S dollar and a weak global economy in terms of demand. The United States economists had predicted a fall in prices (1.6%), just not to the severity of the current situation (11.4%). This has been the largest drop in import prices since the recession in 2009.
As a result of this, there has been a good amount of pressure now focused on the Federal Reserve with how they're going to treat the current economic situation, which as stated by CNBC is "a low inflation in the face of a tightening labor market and strengthening economic growth." The choice the FED has been faced with is whether or not to raise interest rates, which hasn't been done in the U.S for nearly a decade.
This dilemma will be settled on September 16-17 when the policy setting committee meets to determine whether or not the U.S central bank will raise rates. This is all occurring due to market failures as a result of a weak global economy which in turn is resulting in incomplete markets.
http://www.cnbc.com/2015/09/10/us-import-prices-post-biggest-drop-in-seven-months.html
3 comments:
Personally, I think raising the interest rates would be one of the easiest ways to address this problem initially. This would not only help markets domestically, but also international markets. Banks would be more willing to give out loans allowing for businesses to invest back into the economy and grow their own businesses. The economy has shown an increase in growth since the recession, but in order for it to continue to grow there needs to be a form of tightening on the market in order to control growth, inflation, employment and all other factors that go along with an increasing market that in order to keep it from growing too fast and causing other issues.
It seems very plausible that the Federal Reserve will decide to raise interest rate this September. In the midst of years of extremely low interest rates, it will be interesting to see how economic growth and activity responds to the change. I agree in the sense that the economy needs to continue to demonstrate growth after the recession, with a strong control over factors such as inflation and unemployment. My only concern would be that raising the interest rates doesn't backfire and decrease the progress of economic recovery.
Also, we must consider the economy globally when discussing import prices. Furthermore, the economic uncertainty in China may also have a hand in the overall issue.
I think raising the interest rate is a smart move that is very likely to happen. Not only will it help the economy from growing too fat, but it will also give the Fed a tool to use during the next recession. The interest rates have been sitting near zero for a while now and the Fed has taken the correct precautions to not raise rates too early, but I believe it is time now.
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