This is a question for those economists out there. What do you think? want to se
ID: 1202566 • Letter: T
Question
This is a question for those economists out there. What do you think? want to see your opinions
Will raising interest rates today result in the real economy falling back into a recession, thus adversely affecting the labor market and possibly bringing on deflation? If the Fed doesn't act and leaves rates where they are, what would you expect to happen on all three fronts (i.e., with labor unemployment, inflation and real economic growth)? Instead of raising the federal funds rate, maybe the Fed should follow the lead of the Bank of Japan and bring on negative real interest rates? Do you think we need to have negative real interest rates? Why? Finally, do you trust the Fed and our politicians to do anything right? What are they doing right? What are they doing wrong? What is your candid view of the future of the US economy?Explanation / Answer
US economy is recovering from the recession but still it is not on the track of high growth which may be maintained for longer period of time. Thus, if rate of interest is raised in the market, it shall lead to dearer credits in the market. Which is not good for demand in an economy. subdued demand shall cause the fall in the real GDP of country.
If Fed Reserve does not take any action, then it is predicted that economy would not return to its normal position. unemployment rate may rise and GDP would fall. Due to high inputs cost inflation may rise to few points.
Inflation is around 1 % and Fed does not need to be worried about it. In future, economists are not expecting the higher inflation. Unemployment rate is around 7 % which may be two points more if people of who have stopped looking for job are included in it.
GDP is growing at the rate of around 2 %. Thus, it makes the strong case for keeping the interest rate low for quite some time so that economy may recover from the slowdown. Federal Reserve and Congress have different views about the change in interest rate which is quite dangerous, there must be consensus on the policies that are being pursued by the government.
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