Question

Do you agree or disagree with this text?

Why?

According to the Fed Chairwoman Janet Yellen said at a press conference after the central bank’s two-day policy meeting, “at the moment the U.S. economy is performing well, the growth that we are seeing, it’s not based on, for example, an unsustainable buildup of debt, and the global economy is doing well. We’re in a synchronized expansion. This is the first time in many years we’ve seen this.[1]” It is obvious that the United States has a good economy foundation to support the increase of fed rates. Therefore, I recommend that the Federal Reserve should continue to raise the target on the federal funds rate.

As expected, the Federal Reserve raised its bench market interest rate a range between 1.5 percent and 1.75 percent on last Wednesday. Although the Fed began rising rates, the economy still has continually improved. In addition, the economy has added 197,000 jobs a month on average since the Fed began raising rates at the end of 2015. The unemployment rate has held at 4.1 percent for five months, and it is the lowest level since 2001[2].

Because of the increase Fed rates, the economy keeps growing, yet there are some concerns about low inflation persist. Nowadays, the economy has expanded at a fairly steady speed after the financial crisis, and the Fed expects to continue the growth. However, we found that the seventh straight year in which inflation has remained below the 2 percent annual pace that the Fed regards as healthy. In addition, the policymakers have continued to raise Fed rates because most of them are confident that inflation will increase as the economy to grow[3].

According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, “The Fed forecasts an endless expansion, with minimal inflation pressure, despite unemployment well below their Nairu estimate, forever and interest rates peaking at 3.1 percent.[4]” Therefore, I agree with that Federal Reserve should continue to raise the target on the federal funds rate, and it brings a lot of benefits to the United States.

Answer 1

Yes, I do agree with this text.

The US economy is performing well after the financial crisis of 2000. The economy is progressing with healthy growth rate. Also the inflation has well remained below 2 percent which is good for economy. The idea behind increasing Fed funds rate is to achieve stable prices & maximum employment by affecting other interest rates. A higher rate will constrict money supply resulting in lower inflation. A high federal funds rate will encourage investment in U.S by increasing yields on treasury notes & government securities. This will lead to an increase in employment opportunities. This will also boost savings among consumers & businesses as they will get higher returns on savings.

Though there are some side effects of this increase as the government debt may increase due to higher borrowing costs for U.S government. But U.S economy has good foundations to support this increase.