When the U.S. Federal Reserve conducts monetary policy, they chase both growth in real output and low and stable inflation. However, many other central banks specifically target inflation rather than both inflation and output. Ben Bernanke, Chairman of the FOMC, recently announced that the Fed is attempting to provide more transparency (another link on transparency) to their actions and focus more specifically on inflation targeting. The Wall Street Journal blog puts together several predictions regarding what will likely happen to interest rates over the course of the next several months. If the central bank is attempting to keep inflation low, it should take one course of action, and if the central bank is attempting to prevent a recession, it should take another course of action. In any case, these actions appear to be having very real impacts on the prices of oil, gold, food, and trade.
Yesterday (11/28), the New York Times reported that the Federal Reserve was leaning towards cutting rates at their 12/11 meeting. Read this article to get a better understanding of how important the FOMC is at controlling the economy.
Questions you might try to answer:
- Are the possible Fed actions currently at odds with one another and handcuffing the central bank? If so, do you think the Fed is changing it’s policy now regarding targeting?
- Do you believe that inflation or output growth is more important to the overall economy if one can be sacrificed for another?
- If the Fed continues to fight possible inflation, what do you expect the Fed to do? If they fight inflation, what do you expect to happen to the prices of commodities like oil and gold?
- Do you believe that the Fed’s recent actions have allowed for the narrowing of the trade deficit and possibly led to easing of inflationary pressures through increased demand for exports? Is there any evidence of this?
Remember… I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.