In Articles 5 and 9 in the FT book the focus is on the Fed and the importance of the monthly employment release in the United States. As the latest meeting of the Federal Open Market Committee (FOMC) drew to a close yesterday it emerged that the US central bank is about to widen its remit to include an explicit unemployment target. The Fed has long had the dual role of ensuring price stability and full employment. However, the Fed chairman Ben Bernanke now recognises that the FOMC has failed to place enough emphasis on keeping unemployment at a low enough level. So it will now work on setting a formal target for unemployment as part of a more general overview of the way it goes about implementing monetary policy in the US. This will be important as the Fed were forced to now accept that the outlook for the US economy has deteriorated. It now suggests that US GDP will grow by 2.7% in 2012 compared to an earlier hoped for 3.5%. With this in mind we should expect to see the Fed opting to engage in a further round of quantitative easing as they try to stimulate economic activity.
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Kevin Boakes
- About Kevin Boakes:
- I used to work in the City but gave it up in the late 1980s when we had our first child. The hours were not too compatible with a good family life! Since then I have taught Finance and Financial Markets at Kingston University. In addition I have acted as a consultant to a number of Investment Banks. My great working passion is trying to explain complex financial market terms as simply as possible. I also like to make it interesting by relating it to the real World. I wrote the book with the aim of showing lots of other people that Finance can be interesting and accessible. I hope you like it!
2 comments:
If quantitative easing is implemented, would this not imply that there is uncertainty in the market? People may undermine confidence and may discourage them to spend.
Would it not also affect other markets, for instance, the uncertainty caused may retract investments into the US money market or the US money market may not look attractive to foreign investors due to this; which could also affect the value of dollar against other currencies.
There is already uncertainty in the markets and I do not think that quantitative easing will make it worse. Quantitative easing is known for stimulating the economy and that is exactly what the US needs. But they have to be careful so that they do not over estimate the amount needed. If there is too much quantitative easing it can cause inflation, which would conflict with the goal of price stability. Another risk with quantitate easing is that it can depreciate the exchange rate of the already weak dollar.
Miriam Ipsen K1156157
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