Based on these three articles, write self-summary and analysis using economic idea Draw one economic conclusion for each article to help with the analysis.
ARTICLE 1:
FED’S ROSENGREN: MORE THAN THREE RATE INCREASES LIKELY THIS YEAR BY NICK TIMIRAOS
Summary
Nick Timiraos in his article “Fed’s Rosengren: More Than Three Rate Increases Likely This Year” explained that Eric Rosengren, president of the Federal Reserve Bank of Boston, projects that inflation in the United States would increase, as the unemployment level is around/below the natural rate of unemployment. As per statistics, the unemployment rate was 4.1%, in December, which was the lowest unemployment rate in 17 years. He also asserts that recent tax-cuts have intensified economic activity, which has increased the level of employment in the United States’ economy. As the level of employment has increased, so does the size of consumption, which necessitates adjustments in monetary policy. According to the author, for keeping inflation in check, the contractionary monetary policy may be adopted, which will slow down the general increase in the price level. Eric Rosengren is of the view that to effectively curb inflation and keep its rate healthy (the rate at which it facilitates economic growth), the Federal Reserve may have to revise interest rates at least three times this current year. He also believes that in future, policymakers will rely more on monetary policy, rather than fiscal policy, to realize political-economic objectives (Timiraos).
Analysis
For any government, prime objectives are 1) economic growth and 2) full employment level. However, inflation is also a serious concern for any economy, as it directly affects purchasing power, consumer surplus, and size of consumption. After the 2007 economic crisis, a major concern of the government and central financial institution (Federal Reserve) was a revival of the United State’s economy, which was in recession. Expansionary monetary and fiscal policies, which were adopted by the Federal Reserve and US government respectively, revived US economy and increased the level of employment. However, it is causing inflation, as the size of consumption has augmented. Therefore, it is natural that the Federal Reserve is concerned about it and considering devising and implementing contractionary monetary policy. However, an increase in interest rates will adversely affect economic activity (investment), which may cause various kinds of economic complications. Also, the Federal Reserve seems to ignore the fact that nominal wages are still stagnant, which is why it should allow inflation to grow for a small period.
ARTICLE 2:
JOBS REPORT SHOULD KEEP FED ON PATH OF GRADUAL RATE INCREASES BY NICK TIMIRAOS
Summary
The author of the article is of the view that statistics/reports, about employment level, will guide Federal Reserve in taking informed and prudent decisions regarding Fed Funds Rate. The author claims that reports suggest increasing interest rates gradually, to curb imminent inflation, and to slow down economic activity, as already unemployment level is at its historical low. The report suggests that for the time-being, the Federal Reserve should not worry about overheating of the economy; however, must devise a contractionary monetary policy to implement in the medium term. Statistics or Job reports reveal that despite the addition of 313, 000 new jobs in February, the unemployment rate did not change (around 4.1%), which suggests that 4.1% is the natural rate of unemployment in the American economy. However, some economists are of the view that the economy could be well short of the full-employment level; therefore, interest rates should remain low for a couple of quarters (Timiraos).
Analysis
Different reports, regarding jobs or unemployment, suggest that unemployment level is at its natural level, as the addition of 313, 000 new jobs have not changed the rate of employment in the economy. It suggests that if expansionary monetary and fiscal policies do not change, the economy may heat-up, which will cause inflation. Inflation is a serious challenge, as it affects 1) purchasing power, 2) consumer/producer surplus 3) size of profit 4) and distribution of wealth. Therefore, it is essential to consider the statistics, about employment, carefully and devise such monetary policy that is based on these reports.
ARTICLE 3:
HOME PRICES CONTINUED TO RISE IN JANUARY BY LAURA KUSISTO
Summary
In the article “Home Prices Continued to Rise in January” written by Laura Kusisto, the author claims that the housing market is swelling, and the prices of homes are perpetually increasing. The increase, in the prices of homes/houses, is organic and it suggests that economy is performing exceptionally, which affects demand for homes/houses. According to the statistics, the price of homes has swelled around 6.2% January, which is only 0.1 down/less from December, during which the prices of homes swelled around 6.3%. This decline is caused by caused by a couple of factors; 1) new tax laws and 2) increase in mortgage rates. However, projections are that prices, of homes, will continue to soar, as the economy is on an upswing. Statistics also reveal that prices of homes are growing at a faster rate in comparison to income, which is making it difficult for Millennials to buy their first home. Also, this increase, which seems to be organic at this point, may create another housing bubble (Kusisto).
Analysis
Both housing markets (which is one of the largest markets of the United States) and economy (of the United States) affect one another. For instance, when an economy is in an upswing, the size of housing market augments, and when the housing market is in crisis, it affects the entire US economy (2007 sub-prime mortgage crisis). Since 2007, the housing market was in turmoil; however, as the American economy has started to resuscitate, the housing market has started to grow and perform exceptionally. However, the worrying sign is that prices of homes are soaring at a greater rate in comparison to income, which will create different kinds of economic complications. Therefore, it is essential to address the soaring of prices, and through regulations, it is imperative to keep home prices in check. Increase in mortgage rates is one of the remedies to keep home prices in check, as it not only curbs demand but also it keeps mortgage rate rational
Work Cited
Kusisto, Laura. “Home Prices Continued to Rise in January.” Wall Street Journal. Wall Street Journal, 27 March 2018. Web. 24 May 2018. https://www.wsj.com/articles/home-prices-continued-to-rise-in-january-1522155865.
Timiraos, Nick. “Fed’s Rosengren: More Than Three Rate Increases Likely Necessary This Year. “Wall Street Journal. Wall Street Journal, 12 January 2018. E-News. Web. 24 May 2018. https://www.wsj.com/articles/feds-rosengren-more-than-three-rate-increases-likely-necessary-this-year-1515791722.
Timiraos, Nick. “Jobs Report Should Keep Fed on Path of Gradual Rate Increases.” Wall Street Journal. Wall Street Journal, 9 March 2018. Web. 24 May 2018. https://www.wsj.com/articles/jobs-report-should-keep-fed-on-path-of-gradual-rate-increases-1520609825.
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