Monetary Policies in the US and Japan

The Federal Reserve has the dual job of ensuring price stability and maximum employment, which are contradictory objectives. The Feds try to achieve the goals through monetary policy which determines the demand and supply of money by controlling interest rates. The Fed’s goal is to achieve a natural rate of unemployment of more or less 5%. When the actual unemployment figures are below the natural rate of unemployment, inflation increases and there is a high demand of goods and services propelling the economy with the ensuing labor demands and the pressure it places on wages, which in turn produces inflation. When the Fed is faced with this scenario, it must increase the rates to slow the growth and achieve price stability (contractionary cycle).

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time, including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve, including both the traditional and non-traditional measures to ease credit markets and stimulate the economy.

The discussion of whether the Federal Reserve should raise the federal funds rate is a highly contentious one. Members of the Federal Reserve (“Fed”) and academic economists disagree about what constitutes appropriate future macroeconomic policy for the Unites States. In the past, the Fed had been able to raise rates when the unemployment rate was under 5% and inflation was at a target of 2%. Enigmatically, since the Great Recession and despite a strengthening economy, year-over-year total inflation since 2008 has averaged only 1.4%—as measured by the Personal Consumption Expenditures Price Index (“PCE”). Today, PCE inflation is at 1-1.5% and has continuously undershot the Fed’s inflation target of 2% three years in a row. (Evan 2015) In the six years since the bottom of the Great Recession the U.S. economy has made great strides in lowering the published unemployment rate from about 10% back down to about 5.5%. In light of this data, certain individuals believe that the Federal Reserve should move to increase the federal funds rate in 2015 because unemployment is near 5% and inflation should bounce back on its own (Derby 2015). However, this recommendation is misguided.

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve including both the traditional and non-traditional measures to ease credit markers and stimulate the economy.

This report discusses the association between the Federal Reserve System and U.S. Monetary Policy. It mentions that the government can finance war through money printing, debt, and raising taxes. It affirms that The Federal Reserve is not a government entity but an independent one. It supports that the Federal Reserve’s policies are the root cause of boom and bust cycles. It confirms that the FED’s money printing causes inflation and loss of wealth for United States citizens. It affirms that the government’s involvement in education through student loans has raised the cost of a college education. It confirms that the United States economy is in a housing bubble, the stock market bubble, bond market bubble, student loan bubble, dollar bubble, and consumer loan bubble. It supports the idea that the Federal Reserve does not raise interest rates because of the fear of deflating the bubbles they have created in recent years.

The Federal Reserve System is the most powerful institution in the United States economy. Functioning as the central bank of the United States, acting as a regulator, the lender of last resort, and setting the nation’s monetary policy via the Federal Open Market Committee, there is no segment of the American economy unaffected by the Federal Reserve [endnoteRef:1]. This power becomes even more substantial in times of “unusual and exigent circumstances,” as Section 13(3) of the Federal Reserve Act gives authority to the Board of Governors to act unilaterally in lending and market making operations during financial crisis[endnoteRef:2]. As illustrated by their decision making in the aftermath of the 2007-2008 Great Recession,

The United States government continues to attempt to control the stability of the economy through the monetary policies management of the United States money supply, being economically strong in the world’s economy is an attribute that the government continue to strive to maintain. Although theories leading to the Federal Reserve are controversial basic knowledge is important. This paper explores the monetary policies tools of the open market operations, discount rates, and the required reserve ratio. In the context monetary policies will be identified, explained, and the usages noted. Also highlighted is how the monetary policies are used to balance unemployment and high inflation. Monetary Policies plays a vital role in the upholding

The early to mid-eighties presented a challenge to the fed. A combination of falling oil prices and the Federal Reserve 's control of the money supply, helped to slow down an inflation that had been largely out of control in the previous decade. By the mid-eighties, the economy had bounced back and the United States was entering into one of the longest periods of consistent and sustainable economic growth since the second world war. Along with this growth, the annual inflation rate did not exceed 5%.

The federal government responded to the crisis that affected businesses and Industries many ways. The Federal Reserve has been most successful in its double full-employment, low inflation mandate when it relies on fixed rules, and keenly looks on the intermediate term rather than trying to respond to short-term developments under political pressure. A number of policies were resolved to react on the emphasis of intermediate term stability on the handling of the

Over the past few years we have realized the impact that the Federal Government has on our economy, yet we never knew enough about the subject to understand why. While taking this Economics course it has brought so many things to our attention, especially since we see inflation, gas prices, unemployment and interest rates on the rise. It has given us a better understanding of the effect of the Government on the economy, the stock market, the interest rates, etc. Since the Federal Government has such a control over our Economy, we decided to tackle the subject of the Federal Reserve System and try to get a better understanding of the history, the structure, and the monetary policy of the power that it holds.

The nation's monetary policy is set up by the Federal Reserve in order to support the aims and objectives of better employment, stable prices and a suitable and logical long term interest rates. One of the main challenges that are faced by policy makers is the stress among the aims and objectives that can occur in the short term and the fact that information regarding the economy becomes delayed and can be inaccurate (Monetary).

The Federal Reserve went into action in response to the 2008 recession by rapidly reducing interest rates with the hopes of encouraging economic growth. The federal funds target rate was decreased to between zero and .25 percent. The results of the rate changes caused what is called “zero bound”, this reduced the effectiveness of monetary policy with the near non-existence of interest rates.

Japan ranks as the third largest economy in the world as of 2010. The GDP at current prices in US dollars in Japan was reported at 5068.06 billion in 2009, according to the International Monetary Fund (IMF). Japan’s resurgence after World War II has however reached an inflection point in yearly 1989 after the burst of Japan’s asset price and real estate bubbles. As can be seen from the graph below, Japan’s GDP has hovered around the same level through more than 20 years of economic stagnation. The GDP’s slow growth has been exacerbated by the world financial crisis of 2008. A major landmark of Japan’s stagnation has been the BOJ’s fight against deflation.

While Japan’s economy may be contracting, the unemployment rate has lowered to 3.1 percent in October which came down from the 3.4 percent that is was at in January of 2015. The lowest value since July of 1995, but as the number of unemployment has declined sharply and employment has rose. The average of unemployment was 2.7 which was set in 1953. The unemployment rate for Japan is reported by the Minister of Internal Affairs and Communication.