Combating Stagflation, Essay Example

There are numerous factors that affect market stability, stagflation being among. Stagflation takes place when the economy is stagnant but the prices are growing. This is not a good condition for a country to be in. Federal Reserve however, do have the essential tools in restoration of inflation. Whether the tools will be used wisely by Fed is another issue altogether. Inflation caused by stagflation might appear odd concern but it isn’t. A Federal Reserve action effectively makes financial system stable through enormous reserves injections into the credit system. Suppose Federal Reserve wants to combat stagflation, there are various conditions that would ensure faster recession and others would simply make it severe.

Durations of wage contracts will determine the rate of recession. The duration will determine the amount of reserve injections into the market system. It also depends on the rate of recession. Suppose the rate is high, there is little time needed and the reverse is true. Normally, the longer duration of wage contracts leads to high rate of recession.

Having the intentions and tools to be used in combating stagflation is not any idea. Their impacts are less in recession. They cannot be considered as success guarantees as they as well depend on execution. Markets/economy is continually developing, so a method that works now may not the next time and so tools and intentions. However, the level of confidence matters a lot in the process. The methods, tools and ways of dealing with inflation and stagflation all depends on Fed’s confidence. The lower the confidence, the little the success and the recession rate hence decreases and become severe.

The expectations of quick recovering have less or zero impact on the recession rate. It cannot worsen nor better it. The tools and methods used are all that recession depends. It has nothing to do with expectations.