https://www.bbc.com/news/business-53933239
The Federal Reserve has recently come out and said that they will be targeting "an average of 2% inflation, rather than making 2% a fixed goal". This will allow for some variability in the inflation rate in the coming months and years.
The Federal Reserve views this as necessary because of the current situation with the pandemic. They are trying to keep unemployment as low as possible, even if that means sacrificing the inflation rate. I'm confident that the Fed could get the inflation rate under control if they needed to by raising interest rates, but they are trying to make loans as obtainable as possible for corporations and individuals.
Do you think it is a good idea to sacrifice the inflation rate to keep loanable funds readily available for those who need him? Or should the Fed be targeting inflation before unemployment and other issues?
8 comments:
To answer the second question, yes, I definitely think that the Fed should be targeting inflation, however, I don't think that it should be prioritized or that it should be their sole focus for obvious reasons. Unemployment rates need to be targetted as well, if levels of unemployment decrease, inflation will increase so both needs to be properly targetted as well as with other issues that when solved are vital for the well functioning of the economy
I think it is important to create more jobs and bring the unemployment rate down before worrying about the inflation rate. If the FED's policies manage to bring down the unemployment rate, then the newly employed people will be able to deal with the increasing prices. More jobs will create a higher demand for good and services, and when demand increases, the prices fall. So in a way, bringing down unemployment could eventually lower inflation rates.
i agree with Haris that they should indirectly target inflation by targeting unemployment, because when their is more employment their is more spending money for the consumer that will help increase GDP and help manage the impact of corona virus on the economy and hopefully lower inflation in the processes
I would agree with the previous sentiments that targeting inflation through unemployment would be beneficial. A downside to simply targeting inflation is our dollar loses its value in comparison to other foreign currencies. For companies who deal internationally their cost of doing business would increase, leading to lowered profit margins. This would likely be counteractive as companies may choose to lay off workers or move jobs elsewhere.
I believe creating growth and lowering unemployment should be the primary goal of the Fed right now. Even if this leads to inflation, a greater percentage of the labor force being employed will best ease the negative effects of the pandemic. Because companies are looking to resume work and get their employment levels back to pre-pandemic rates of employment, increasing employment now will prepare companies to get back to a "normal" workforce as quickly as possible. However, because people are likely scared of taking out loans now, it is doubtful that even low interest rates will be able to stimulate the economy, as this pandemic rests on the state of the disease rather than simply on economic factors.
With the current state of the United States, the FED has no choice but to allow inflation to go over its typical 2% fixed rate if they want to incentivize consumer spending by lowering interest rates for the foreseeable future. However, there is much economic uncertainty in the United States at the moment, and people are hesitant to take out loans even with the current low interest rates. I am quite interested to see how the FED will respond to this, or if they plan on waiting it out. With regards to unemployment and growth, I believe that the FED currently has very little they can do to fix this issue besides trying to incentivize consumer spending. With the ongoing pandemic, they cannot encourage people to go back to work or force businesses to open. This is a very unique situation that we are currently in, and it is going to take more then just those at the FED to bring back the economy to normal.
I believe that at this point in time this seems to be the best measure to take because getting unemployment dow should be the primary goal. Creating more jobs through such policies will hopefully create a demand for services etc. When the demand for goods/services increases this yields to lowered prices in the long run hence lowering inflation as well. All in all, I think that according to the situation the FED has taken appropriate measures.
I think that the unemployment rates would be targeted as well and looked into. I feel that if they do not worry about the inflation rate as much and more about the jobs, that would be better. I think that if they work harder on lowering the unemployment rate, the inflation rate will also decrease. Both Inflation and Unemployment are essential and should be looked at together so that they can be balanced out.
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