Dr. George Sharghi
There is a consensus among analysts regarding the ability of economist’s to accurately forecast inflation, and consequently it appears that the relationship between real economic activity and inflation is ambiguous. It is the Fed's job to do what it can to reduce unemployment in order for the economy to sustain and to make sure that inflation returns to a level more consistent with its mandate. The central focus of U.S. monetary policy is price stability.
Thanks to its control of money markets and banks, the Fed influences interest rates, asset prices, and credit flows throughout the financial system. To help attain inflation goals the Federal Reserve uses intermediate indicators. Academic economists question Federal Reserve policy maker’s abilities to control expectations concerning a price stabilizing monetary policy. Dudley (2011), President and Chief Executive Officer of the Federal Reserve Bank of New York asserts: “In order to foster greater economic momentum, reduce downside risks and speed up the return to more normal levels of unemployment and inflation, in early November the Federal Reserve announced its intention to purchase $600 billion of Treasury securities. These purchases helped to ease financial conditions, thereby stimulating economic activity.”
In chapter 15 of our text I read something that immediately brought me back to my FIN-350 class in undergrad. The first paragraph of chapter 15 says the chair of the fed is second only to the president in power (McConnell, Brue 2005). My professor said basically the same thing and it certainly got everyone’s attention.
Monetary policy is carried out by the Federal Reserve. Monetary Policy is used to make changes in the nation’s supply of money. These changes affect interest rates which affects the amount of spending. Monetary policy is supposed to get price levels stable...