© 2018 by Robert Person.  The views expressed on this website are my own and do not represent the official policy of the U.S. Army, Department of Defense, or U.S. Government.

ronald.fricke
Apr 15

Fed and US unemployment

0 comments

https://www.bloomberg.com/opinion/articles/2018-12-19/the-fed-s-risky-plan-to-boost-unemployment

 

The US Federal Reserve is trying slow the economy enough to increase unemployment by about 1.4 million people in order to reduce inflation. Specifically, the Fed wants to hit 2% inflation which would require the unemployment rate to stay around 3.5%. Currently, the unemployment rate is at 3.7% and the federal funds rate is at 2.4%. In order to achieve this rate of unemployment, the Fed will have to bring economic growth down through its new policies being implemented. Specifically, in order to slow growth down, the Fed is planning to raise its interest rate target above its long run level of around 2.8%.

 

This topic connects to the lesson on "The State and Monetary Affairs" and how monetary policy effects unemployment and inflation. Specifically, the concept in the article reflects "Phillip's Curve" and the relationship between unemployment and inflation. The Fed making these policy decisions to keep inflation low is worth the risk because low levels of inflation is a sign of a healthy economy and will increase long term investments. The reason that the Fed wants to hit 2% inflation is because if inflation continues to rise through the success of the economy, it has the potential to devalue long term investments and makes it harder to consume. This idea of meeting the low inflation target will also affect wage bargaining because an unexpected increase in inflation will lower the real wage and reduce unemployment while an unexpected decrease in inflation will raise the real wage and increase unemployment. With this new policy in mind, it should be interesting to see how the President reacts because he has already expressed disapproval of the Fed. It will be interesting to see if the Fed leans towards the President's demands or if it stays true to its plans.

New Posts
  • christopher.chaulk
    May 10

    Sanctions Can't Spark Regime Change

    In his article for Foreign Affairs David Cohen talks about the Trump administration's policy towards sanctions. He talks about how the conditional sanctions the Trump administrations has placed on Iran and now Venezuela will be ineffective because the changes the administration is trying to coerce will essentially mean regime change for the two nations. Cohen goes on to state that these will be ultimately ineffective because the relative cost of the sanctions is lower than the cost of losing power. This means that the leaders of Iran and Venezuela are more willing to bear the pain of the sanctions than lose the regime. This goes along with the lesson we had on sanctions in a couple of ways. First we learned that sanctions are used either as a method of deterrence or coercion. This means that the sanctions inflict financial and economic pain to make the target of the sanctions take or not take an action. These sanctions are meant to cause political changes that will in essence mean a change of regime which is why they will fail. They are effective in causing pain; however, there is not enough sanctions in the world to make it worth losing power. Article link: https://www.foreignaffairs.com/articles/united-states/2019-04-29/sanctions-cant-spark-regime-change
  • william.moorhead
    May 10

    Trump Increases China Tariffs as Trade Deal Hangs in the Balance

    https://www.nytimes.com/2019/05/09/us/politics/china-trade-tariffs.html Just before a scheduled round of trade negotiations began on Friday, President Trump announced that he was still going to levy additional tariffs on Chinese imports valued at approximately $250 billion. President Trump claimed that these tariffs would bring billions of dollars back to US manufacturers, but the main focus seems to be inflicting pain on China, as opposed to bringing prosperity to the US. China and the US have not been able to reach an agreement that would minimize or end outright the "trade war" between the two, which stems from the Trump Administration's belief that China is not doing all it can to protect American investments and intellectual property in China, as well as the belief that a large trade deficit with China is inherently bad. The Trump Administration's use of tariffs as a negotiating tool is inelegant, but effective. Unilateral tariffs immediately affect the Chinese export industry, whose products become less competitive in US markets. While this inflicts pain on Chinese exports, whose largest market is the US, it also affects US consumers, who have to pay higher costs for consumer goods. Additionally, because China retaliates with target tariffs (on politically-relevant goods like Kentucky Bourbon and soybeans from the Heartland), US exporters are equally hurt by the trade war. The only immediate winner is the US, who collects revenue from the applied tariffs; however, long-term, US domestic industry should improve, as they will become more competitive when Chinese imports are more expensive. Slowly, we are starting to see this happen: Dan DiMicco, the chairman of a lobby group "Coalition for a Prosperous America," explained that American manufacturing is already experiencing gains in their domestic market shares.
  • christopher.papa
    May 10

    Illegal Immigration and Migration

    https://www.washingtontimes.com/news/2019/may/8/feds-release-168k-illegal-immigrant-family-members/ In Stephen Dinan's article in the Washington Times, he explains the unforeseen immigration due to illegal border crossings. ICE border patrol has released 168,000 illegal immigrant family members this fiscal year, and the number is expected to increase as the border situation increases in volatility (Dinan). Dinan reports that 87% of families in this new pilot program skip their court hearings, and with an ill-equipted government to track them down judges deport them in absentia (Dinan). Dinan argues that this increase in illegal immigration in family units is caused by a 2015 court ruling that stated parents who travel with children must be released in 20 days. Since this is too little time try them in court, the families are set free (Dinan). This article is very relevant to this block in IPE as it highlights a crucial phase that the world is going through. As policies towards free and open borders begin to gain more and more traction, we can expect the number of border crossings into the country to continue. As we talked in class, this may actually be a good thing for the economy, as low skill labor is substituted due to a higher rate of college attenuation and graduation. Dinan says that most migrants interviewed are not criminals, they are just seeking jobs, and know that if they bring children they will find asylum in the US (Dinan). One of the unintended consequences is that some of these migrants are being used to smuggle drugs and weapons into the country, and in some extreme cases, children are being sold to impersonate children of felons migrants of south american countries to gain access with ease. As globalization brings countries closer together and as the trend for free an open borders continues incentivizing cheap labor, it will be interesting to see the effects of these policies 10-15 years in time.