1-How is your selected article related to money and capital markets, financial markets, financial instruments, international markets, and economic policy?
The article emphasizes on current economic conditions and debate among economists about appropriate monetary policy. Monetary policy is the instrument of choice, an economy/state, to bring about change in an economy. Liberal-economic systems (based on the neo-classical notions and principles about the economy) rely, primarily, on the central bank for the realization of political-economic objectives.
In different sections of the article, the pace of economic growth and the implications of such pace are discussed in detail. The article reveals that though there is a difference of opinion regarding the monetary policy about short-run; however, there is a consensus that monetary instruments would be employed to bring any change in the economy. It implies that the Central Bank (Federal Reserve in the case of the United States), will readjust the interest rates and change the supply of money in the economy to ensure economic stability, which is a prime objective of any state, country or government.
Changes in interest rates and inflation directly affect capital and financial markets. For instance, when interest rates increase, more funds are available for loans at a higher rate (increase in supply); whereas, when interest rates are low, there is more demand for loans. Similarly, bonds and securities (financial market) are also affected directly by interest rates. Also, when expansionary or contractionary monetary policy is employed, it directly affects investment and inflation. Therefore, monetary policy, which is the subject of this article, affects capital/financial market and the overall economy.
2-What issue or question is your selected article addressing?
The article focuses on 1) Monetary Policy, 2) Inflation, 3) Investment and 4) employment. The article reveals that opinion, regarding the use of monetary policy, is divided. Also, economists are divided on the subject of the performance of the economy. For instance, some economists are of the view that the economy has performed exceptionally and the pace of growth is too fast, which will yield complications such as inflation (Tankersley).
Inflation is a controversial subject, as it impacts various aspects of the economy. For instance, high inflation reduces the purchasing power of consumer (buys less than previous in same income), which directly affects the size of consumption. Any change in consumption directly affects the economy, as consumption is considered an engine of growth.
A group of economists suggests that contractionary policy must be adopted with immediate effect to curb growing inflation and to normalize economic growth. However, the group, which opposes this viewpoint, asserts that benefits of expansionary monetary policy have not yet reached an ordinary worker, in the form of an increase in employment and income, which is why the adoption of contractionary monetary policy must be delayed for at least two quarters.
3-Why should this issue or question be of interest?
Monetary policy is a very sensitive and important subject. It is because monetary policy is used as an instrument to bring about desired changes in the economy. However, changes in monetary policy also have unintended consequences, which makes it a sensitive and controversial subject. Therefore, knowing, discussing, and devising a strategy, as per prevailing monetary policy, are essential for individuals, forms, and industries.
The changes, in Monterey, would be of great significance, as the American economy has recently come out of the recession and after a long period, interest rates would swell this much. If the contractionary policy is adopted to normalize economic growth, then it will reduce inflation and increase interest rates. The increase in interest rate will reduce the size of investment in the economy, which may adversely impact employment level in the economy. In addition to the employment level, nominal wages may get affected by the change in monetary policy. The change will not affect goods market (consumption), but also financial and capital markets. Therefore, the subject of the article, monetary policy, is very relevant and has great significance.
4-Summarize the Article.
Monetary policy is very sensitive matter, which produces mixed results. Its target or focus is the overall economy, rather than particular sectors of the economy. Also, the monetary or fiscal policy cannot achieve all economic objectives. For instance, it is easier for monetary policy to achieve the objective of increase in the size of investment and employment, rather than realizing the objective of high nominal wages.
Also, a change in monetary policy requires a lot of thought-processes. For instance, should Federal Reserve or Central Bank wait for the realization of all set targets (economic) or should it change policy because of the maturing of unintended consequences? In the nut-shell, monetary policy requires reconsidering after every two quarters, and it cannot achieve 100% results (Tankersley).
5-Make Your Own Assessment of The Issue or Question.
As per my understanding that developed from the study of literature about the economy and monetary policy, for another two quarters, monetary policy must remain same, as the ramifications of the Great Recession (sub-prime mortgage crisis of 2007) has not disappeared fully. Also, there has been no substantial increase in nominal and real wages, which means that consumers would not be positively affected by changes in monetary policy, which is not good for the economy. Therefore, in my opinion, for another two quarters, the expansionary monetary policy must remain in full force; allowing investment and consumption to grow further (Brandl).
6-Provide a brief summary of your findings and conclusion.
Currently, there is the conundrum about policy. Not only the size of the profit is small, but also wages are too low to attract potential employees. Therefore, it is becoming extremely difficult to alter monetary policy. It is essential for the Federal Reserve to show restraint and exercise patience, as slowing down economic growth, after a recession, may affect the economy in an undesired manner.
Work Cited
Brandl, Michael. Money, Banking, Financial Markets and Institutions. Cengage Learning, 2016.
Tankersley, Jim. “Fed Officials Worry the Economy Is Too Good. Workers Still Feel Left Behind.” The New York Times. The New York Times, 26 April 2018. Web. 3 May 2018. https://www.nytimes.com/2018/04/26/us/politics/fed-economy-overheating.html.
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