What Are the Two Main Goals of the US Federal Reserve? Essay Example

According to the Wall Street Journal survey, by what percentage do economists believe the U.S. economy will grow in the second half of 2014?  It is expected to be a 3 percent growth in the economy. How accurate were their predictions for economic growth in the first half of the year? This prediction was not entirely correct, but it was very close. It was predicted that the economy would grow by 2.1 percent, but it surged to 4 percent.

What will be the key driver of economic growth for the next year, according to the survey? The key driver of economic growth for next year is expected to be business investments. Since 2009, the business rate has been increasing by a steady annual percentage rate of 5.1 percent.

Carefully explain how an increase in this variable would affect the economy in the long-run.The average forecast calls for inflation, as measured by the consumer-price index, to end both this year and 2015 at 2.2%. The consensus forecast has the economy generating an average of 217,000 new jobs a month for the coming 12 months. That’s up from 212,000 expected in July, but little different from the 214,000 average of the 12 months ended in July. The panel thinks the jobless rate will end this year at 5.9% and 2015 at 5.5%, the same forecasts recorded in July, and an improvement from the current 6.2% rate. Essentially, this means more jobs and more reasonable prices for consumers.

What is the biggest danger to continued growth, according to the survey? The consensus view when the survey was conducted in early January was that real GDP would grow a strong 2.7% in the first half, versus the actual rate of less than 1%. The average forecast thinks housing starts will total 1.01 million for the entire year. While that figure would be 9% above 2013’s pace, it’s down from the 1.11 million housing starts forecasted by economists at the start of the year.How will the Federal Reserve’s will anticipated future policy actions affect this factor? These policy changes could trigger a jump in mortgage rates.

What are the two main goals of the U.S. Federal Reserve?Its goals are to promote economic growth in order to create jobs for full employment. What is the current level of the federal funds target rate? The target rate is 2 percent. When this rate was last changed?The rates have not been changed in nearly 10 years.  When does the Fed anticipate raising this rate? Fed forecasts show most officials expect to start raising rates next year. Many market participants see mid-2015 as the starting point.

What is the chief danger to the U.S. economy of waiting too long to raise short-term interest rates?  If the Fed waits too long to raise prices, other banks will follow suit and offer incentives for others to wait as well. If this occurs, Fed will not make profits from interest rates. They could possibly be behind the curve.

What is the danger in raising this rate too soon? If the economy does not improve at the percentile expected and rates are raised, payments requested will place consumers in a financial bind.  What are three piece of information the Fed has used to support its hesitation in raising rates? Do you agree with the Fed’s decision to wait? Why or why not? They have tracked inflation rates for several countries over a period of time. If their calculations are correct, not raising rates is a wise choice. Do you agree with the Fed’s decision to wait? Why or why not? I agree with their decision because although the economy is improving, people need more time to become financially stable. Not raising rates allows people time to save or establish their “nest egg”.