Manipulating the Economy

Cynthia Buchanan
23, June 2013
Econ 122
Dr. Kassens

June 19^th 2013, FOMC Statement

June 19^th’s press release from the Federal Open Market Committee addresses the status of the United State Economy, and the measures that must be taken by the Federal Reserve. Since the May meeting, the economy has shown signs of expansion, but there are also areas that need to be addressed such as high unemployment rates and low inflation rates.

The market system allows buyers and sellers to interact, determine prices, and exchange goods and services. To spend the market back to equilibrium an increase in consumption through households and businesses is required. However, when the economy is unstable, consumers are hesitant to invest. To counteract the consumer fear the United States Federal Reserve has continued with quantitative easing to manipulate dynamics of the bond market and therefore pricing.

Their ability to manipulate market dynamics is caused by their ability to buy the securities and retain them. In purchasing these short-term bonds and securities the federal government is able to increase the monetary base though commercial banks. Their method artificially changes the liquidity for the consumer to purchase short-term bonds and securities, through lowered interest rates.

Stimulating the economy through monetary policy measures such as this, allow many positive changes in the market. Unemployment rates will begin to fall, as the firm will be required to hire more laborers to meet the needs of the consumer. Labor market conditions have already been noted as positive due to improvements in conditions for workers. The aforementioned improvements have the power to keep laborers in the work force, with higher pay and benefits. Better pay and benefits is likely to increase the disposable income of the consumer, the final goal to continue spending more money. 

The FOMC considers the importance of successfully meeting both long term and short-term goals. These policy measures are to be maintained as “to support a stronger economic recovery and help ensure that inflation, overtime, is at the rate most consistent with its dual mandate”. Successfully flushing capital into the market entices consumers to spend more. This can have severe effects on currency exchange rates and pushes the natural market forces around manipulating the supply and demand curve’s equilibrium.

United States Federal Reserve. Federal Open Market Committee. FRB: Press Release. FRB: --Federal Reserve Issues FOMC Statement --June 19, 2013. Federal Reserve, 19 June 2013. Web. 23 June 2013.