We mentioned tradeoffs between economic outcomes earlier in the semester, and this article mentions possible tradeoffs between the goals of the Fed. Per the author, the Fed should aim to increase unemployment from 4.1% to the natural rate of 4.5% in order to combat inflation. However, doing so would most likely lead to a recession. It was interesting to note that the article mentioned that unemployment is on pace to reach 3.6% by the fourth quarter of 2019. In reality, the Fed's plan is to gradually raise interest rates so that unemployment and growth rates return to their long-run sustainable levels. In general, I felt that the author was very biased and critical of the current administration's handling of the economy. It is also evident that he fears a recession soon, as we are nearing the end of a business cycle.
https://www.wsj.com/articles/feds-mission-improbable-lift-unemploymentbut-avoid-recession-1521711004
5 comments:
This is a good example of the difficulties that governments face when trying to achieve multiple goals. Raising unemployment in order to lower inflation is something that will definitely upset many Americans, and you put forth a good argument on the opinions of the author.
It is odd to see the FED possibly increasing unemployment rate as an effect from raising the interest rates. This does make sense because some say that we are producing and operating at a state that is past the steady state and before long we as an economy will return to this steady state level.
I agree with Nick. It is very weird to the FED increasing the unemployment rate to try as an effect from raising interest rates. But should be interesting to see its impact.
There are multiple ways to control the interest rate and I believed that increasing unemployment rate will never be the best. The increase of unemployment would directly affect the productivity which would have negative impacts on GDP. Moreover, recently, Trump published tariff policy to promote the aluminum and steel industries, and it needs employees to achieve the goal.
I dont think its the best idea to increase the unemployment rate in order to combat inflation, since there are various negative impacts of rising unemployment on the economy like lower consumer spending, etc. This would negatively affect the economy in the long run and the FED should try an alternative in order to combat inflation.
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