Wall Street Journal Article Assignment

Wall Street Journal Article Assignment
Assignment #: 1
Title: Fed Acts to Fix Jobs Market
Author(s): Jon Hilsenrath & Kristina Peterson
Date of Publication: September 14, 2012

Executive Summary:
This article goes into the Federal Reserves recent announcement to try to stimulate the sluggish economy. Ben Bernanke announced that the fed would begin buying mortgage-backed securities and keep the interest rate low for several years. To be more specific, he said that the Fed would buy $40 billion a month of the mortgage-backed securities until the improvement of the job market. This came after recent jobs reports stating the unemployment rate remaining around 8.1%. News of the decision sent markets soaring as Ben Bernanke left the door open for further government involvement if the economy doesn’t pick up. The decision wasn’t without its controversy. Many economists point to the possibility of increasing inflation in the long run, overshadowing the short-term gains. In addition, some argued it didn’t go far enough, while others used the move to show how the current presidents policies are failing the country. His other announcement was that he was keeping short-term interest rates near zero until 2015 (an additional year past the original date). In a surprising vote, only one Fed official votes against ht the move, proving it was a good move by Ben Bernanke. The goal for the move is to invigorate or speed up the recovery process, specifically in the housing market.

Discussion of Course Concepts:
This article touches on the specific tools the Federal Reserve has in its arsenal to help achieve its goals. These being to maximize employment and keep inflation stable. The government has the power to influence the countries economy by using monetary and fiscal policies (both course concepts). These two tools, if used carefully, have proved to be useful during the recent recession. They have helped stop the free fall of the economy, but it is still far from its once former glory. Monetary policy is when the government tries to influence the economy through the interest rates and supply of money. This is where the majority of the governments plan is focused on. Additionally, monetary policy is the one policy known to deliver a quicker and significant impact on an economy. Ben Bernanke announced the spending of $40 billion a month to buy mortgage-backed securities until the economic recovery begins to pick up. By influencing this factor, the Federal Reserve is not only showing that they are whiling to step in to invigorate the sluggish economy, but also that they are committed to it. They want to encourage spending, investments and exports to the country. This was also demonstrated with their decision and promise to keep interest rates low through 2015. The Federal Reserve stated that if needed, next year they would begin funding their quantitative easing (buying of bonds) by printing more money. This is where many worry long-term inflation could be consequently affected. With more money in the market, the value will inversely go down.
Fiscal policy is when the government tries to influence the direction of the economy through government taxes or spending. Since jobs are essentially created when consumers, businesses and government spend money, it is crucial that the spending by these parties increase if the government hopes to ever effect the pretty stagnant unemployment rate. Unfortunately they have chosen to not directly affect fiscal policy, but focus on monetary policies because they can have a faster impact on the economy. Fiscal policy can take significantly longer than monetary policy to have any effect, and its direct impact is difficult to completely measure. An example of this is the controversial American Recovery and Reinvestment Plan. With its $787 billion price tag, it has largely been seen as a failure by many due to its lack of economical jump-start, not saving as many jobs as promised and mismanagement of funds.
Government involvement has always been a polarizing topic for most people. People will either be in favor of the governments involvement is the economy when it’s struggling or be against it if they believe the government is gaining too much power. Many argue that even with all this past and present government involvement, they are fighting the problem in the wrong way. Critics point at all past involvement and spending and say that even with all those measures, the economy hasn’t significantly improved. They go on to state how the government is just spending more money they don’t have by essentially financing their future away. Many believe the market is better suited than the government at fixing itself. No matter how economist may see it, the Federal Reserves word is final and with a vote of 10 to 1, they have committed themselves to trying to influence the slow moving economy in the right direction. After jobs report after jobs report showing minimal to no chance in the employment rate and the presidents policies not making any significant dent, they had no choice other than to step in. Their goal is to maximize employment, which nobody can argue doesn’t need help at this time. By using the tools available to them (fiscal and monetary policies), they hope to do just this.