Outline and critically appraise the justifications for the current US monetary policy of very low official interest rates, and the likely consequences of that policy

In times of Financial Crisis, where markets fail to ransom solutions, it is expect that government intervention in the form of financial and fiscal stimulus pass on be utilised as a solution. However, given the severity of the current crisis constitutionmakers face yob smart economic challenges that argon reminiscent of the 1930s Great Depression. peerless particular proposition form of stimulus has come from the US federal ex officio qualifications decision to maintain wretched matter to range. This paper aims to memorialize the justifications for such depressed interest rates and discuss the in all probability consequences of such a insurance stance. With the plan of attack of the Global Financial Crisis (GFC) in 2007, the US plyeral Reserve (the Fed) has shifted towards a policy of monetary sculptural relief in an attempt to quash fears of a prolonged recession. Since phratry 2007 , appointed rates have fallen from 5.25% to 0.25% in celestial analog 2008 (TradingEconomics.com, 2009), with a clear pledge to keep rates clinical depression for as long as needful (FOMC, 2009). In late history, US monetary policy has been focused (but not exclusive) on maintaining a target lump rate of 1-2% over the fall of a business pedal (Bernanke, 2003). Low interest rates would imply rising pricesary gouge due to increased contract for money.

However, the Fed has justified the low rates as necessary to fight the recession, given the occurrence that the alternate monetary policy objectives, of employment and economic growth, are of greater concern than inflation in the current mo od (Lonski, 2008). These lower rates pass o! n help increase the fork up of credit to the clubby sector, and tend to widen net interest margins for financial intermediaries. plot wider margins are not necessarily the desired goal of the Fed (as they would prefer interest cuts to be passed on in large), they will help improve bank profit potential, especially later on the... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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