The Sluggish Economy

Article Title: Fed Acts to Fix Jobs Market

Author(s): Jon Hilsenrath & Kristina Peterson

Date of Publication: September 14, 2012

Executive Summary:

This article goes into the Federal Reserves recent announcement to try to stimulate the sluggish economy. Ben Bernanke announced that the fed would begin buying mortgage-backed securities and keep the interest rate low for several years. To be more specific, he said that the Fed would buy $40 billion a month of the mortgage-backed securities until the improvement of the job market. This came after recent jobs reports stating the unemployment rate remaining around 8.1%. News of the decision sent markets soaring as Ben Bernanke left the door open for further government involvement if the economy doesn't pick up. The decision wasn't without its controversy. Many economists point to the possibility of increasing inflation in the long run, overshadowing the short-term gains. In addition, some argued it didn't go far enough, while others used the move to show how the current presidents policies are failing the country. His other announcement was that he was keeping short-term interest rates near zero until 2015 (an additional year past the original date). In a surprising vote, only one Fed official votes against ht the move, proving it was a good move by Ben Bernanke. The goal for the move is to invigorate or speed up the recovery process, specifically in the housing market.

Discussion of Course Concepts:

This article touches on the specific tools the Federal Reserve has in its arsenal to help achieve its goals. These being to maximize employment and keep inflation stable. The government has the power to influence the countries economy by using monetary and fiscal policies (both course concepts). These two tools, if used carefully, have proved to be useful during the recent recession. They have helped stop the free fall of the economy, but it is still far from its once former glory.

Monetary policy is when the government tries to influence the economy through the interest rates and supply of money. This is where the majority of the governments plan is focused on. Additionally, monetary policy is the one policy known to deliver a quicker and significant impact on an economy. Ben Bernanke announced the spending of $40 billion a month to buy mortgage-backed securities until the economic recovery begins to pick up. By influencing this factor, the Federal Reserve is not only showing that they are whiling to step in to invigorate the sluggish economy, but also that they are committed to it. They want to encourage spending, investments and exports to the country. This was also demonstrated with their decision and promise to keep interest rates low through 2015. The Federal Reserve stated