The financial stability of any nation is a key economic indicator that defines its potential to manipulate the economic tools for the benefit of both the government and its people. The conception of monetary policy is core and largely controlled by the central banks, commercial banks and other financial institutions that aid in controlling monetary reserves and that in circulation for purposes of balancing economic variables for the interest of maintaining interest and inflation rates within the economy.
According to the article by Tim McMahon on Dec 13th, 2017, he asserted that the role played by inflation in determining the actual economic health of a nation is critical and of bigger implication to its stability. When hyperinflation occurs, economic collapse is the consequence. Furthermore, moderate inflation may as well be risky as it limits institutions from conduction an accurate estimation of the future financial costs due to the erosion of the consumer purchasing power. Notably, the higher the inflation, the higher the interest rate because the lenders will be driven to compensate for reduced purchasing power for purposes of maintaining future interest plus the principal repayments hence resulting into an economic drag. Based on the article, the Federal Reserve has targeted the US inflation rate of 2%, and this has been the figure though shifting as from January according to Jeffrey Sparshott hence the plan by Fed to escalate the rates.
Similarly, on 13th of Dec, a New York Times article by Benyamin Appelbaum raised controversial positions held by a various economist on the feds to plan to cut the taxation cost by about $1.5 trillion as suggested by the US president trump hoping that it would raise the economy 6 times. According to Janet Yellen, the feds chairperson, she asserts that, they conquer with the expectations of the economists as other variables including employment and unemployment rates are worth consideration and that certain economic moves might endanger the economy. She announced that her expected decision was to raise the rates to about 1.25 to 1.5%. The decision is to lift the rates from the near-zero rates imposed during the 2008 recession and match towards a confident and healthier economy.
Earlier this year, Ms. Yellen and other Feds official warned against the congress movement on tax cuts as its consequence is unsustainable economic growth that calls for a further increase in fed rates. Conversely, the chief economist Ian Shepherdson, of the Pantheon Macroeconomics considered the direction of Fed as hopeless and unrealistic as the move is meant to kill unemployment with no implication to the inflation rates. The issue of tax, monetary inflation, and the federal banking system have created heated debates among economists, financial consultants and the interest of the Congress to its people resulting to delays in striking better economic decisions as at 13th Dec 2017.
Despite the heated debates and contradicting views, TAYLORS RULE is key in enhancing price stability and safeguarding the credibility of the future undertaking of the central bank. Furthermore, the FEDERAL FUND RATES are to be reasonable and based on the economic demands placed by the FED FUND MARKET. The DISCOUNT RATE should also be adjusted depending on the borrowing rates of the concerned financial institutions, and all these economic variables have an ultimate implication to the GROSS DOMESTIC PRODUCT of a nation.
Benyamin Appelbaum. U.S. Fed Predicts Modest Economic Growth From Tax Cut. The New York Times
Kimberly Amadeo. U.S. Fed Funds Rate: Definition, Impact and how it Works. The balance. Com
Tim McMahon. U.S. What is the current inflation Rate? : US Annual Inflation Rate in percent. Inflation Data. Comhttps://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp
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