Rosengren sees more need for Fed stimulus

Wes Pancoast

Dr. Kassens

Macro Econ

April 18, 2013

Article Post

            The article I am posting about is an article from the Boston Globe on March 27, 2013.  The article is about the director of the Boston Fed, Eric S. Rosengren pushing for continuing support from the Fed by way of stimulus.  The article mentions a number of topics covered in class such as monetary policy, inflation, unemployment, full employment, and interest rates.  Rosengren wants to continue to push for more stimulus because it helps accelerate the recovery of the economy.  While the economy is recovering, he believes that it is too slow a rate citing expectations for the unemployment rate to drop only .2 percent from now until the beginning of next year.

            The Fed has been stimulating the economy by purchasing U.S. treasuries and mortgage-backed securities creating low long-term interest rates for the people of the United States.  This encourages consumers to purchase houses and cars to increase consumption and encourages businesses to produce more goods and create jobs because money is cheaper to borrow.  This is an example of monetary policy by the Federal Reserve Bank.  The ultimate goal of these policies is to get the economy back to full employment, which occurs when there is no cyclical unemployment, or insufficient demand for labor.  The Fed has a target unemployment rate of 6.5 percent before they allow interest rates to rise again.

            The counter argument to continuing this stimulation of the economy is a worry that inflation rates may begin to rise to levels that are too high possibly causing another financial crisis like the one we are currently recovering from.  Another is that it could cause housing rates to increase too much because of low mortgage rates.  Rosengren says that this should not be a worry; however, as the inflation rate remains below 2 percent and housing prices are below their peak.

            Monetary policy is a key tool to control the economy because it can be used to increase or decrease the money supply.  This will have a direct effect on production and consumption of goods because people will have more or less disposable income.  For example, times when the Fed may want to lessen the money supply are when inflation rates get too high raising prices.  Lowering the money supply will lessen demand and cause prices to drop.  The Fed may want to increase the money supply, however, when unemployment is high and consumption is low.  This will cause demand to increase, making a need for more production and new jobs.

Woolhouse, Megan. "Rosengren sees more need for Fed stimulus." Boston Globe [Boston] 27 Mar 2013, n. pag. Web. 18 Apr. 2013. <http://www.bostonglobe.com/business/2013/03/27/boston-fed-rosengren-sees-slow-growth-more-need-for-fed-stimulus/vn9IN4CprzYWvzqsKy0qlJ/story.html>.

http://www.bostonglobe.com/business/2013/03/27/boston-fed-rosengren-sees-slow-growth-more-need-for-fed-stimulus/vn9IN4CprzYWvzqsKy0qlJ/story.html