Why does fed tend to focus on the measurement of inflation

Reference no: EM13191169

Fed Sees Both Unemployment, Prices on Rise

The Federal Reserve sees worse economic problems ahead . But even so, the Fed may be reluctant to cut interest rates any further than it already has . The Fed lowered its economic growth forecast for the year. At the same time, it reaised its projections for inflation and unemployment . The Fed raised its unemployment forecast to between 5.5 percent and 5.7 percent [and] now expects personal consumption expenditures to rise between 3.1 percent and 3.4 percent in 2008 . . [and] expects steeper "core" inflation . In an effort to keep the country from falling into recession and to deal with the credit crisis, the Fed has cut its key federal funds rate seven times since September. This short-term interest rate is now 2 percent, down from 5.25 percent at the start of the Fed's easing campaign . Some believe the Fed cuts since last September helped fuel inflation, especially the sharp run-up in oil prices, because the rate cuts have led to a weakening of the dollar. Along those lines, the two Fed members who voted against the last rate cut argued during the meeting that the Fed cuts were hurting the economy more than heping it. CNN, May 21, 2008

a. Explain the inteded effect of the Fed cutting the target federal funds rate from 5.25 percent to 2 percent and illustrate your explanation with an appropriate graphical analysis.

b. Explain how this monetary policy may have "helped fuel inflation, especially the sharp run-up in oil prices."

c. What is core inflation and why does the Fed tend to focus on that measurement of inflation more heavily than overall inflation?

d. Explain the dilemma that the Fed is facing when making decisions in the face of rising unemployment and rising inflation.

Reference no: EM13191169

Questions Cloud

State the butane combusts completely : A feed stream containing 2.00 mol/min butane and a feed stream containing 130 mol/min of air are fed into a reactor. The butane combusts completely according to the following reaction:

Identify and formulate the problem or opportunity : Include your strategy using the marketing research process to "attract more Marketing Program students to the University of Stevens Point," using self- administered, one-time mail surveys as the research plan. Include what you would do for each st..

Show that vector p and q are orthogonal : Show that vector p and q are orthogonal

Define triphenylaluminum is a dimer while triphenyl boron : At room temp, triphenylaluminum is a dimer while triphenyl boron is a monomer.

Why does fed tend to focus on the measurement of inflation : The Federal Reserve sees worse economic problems ahead . But even so, the Fed may be reluctant to cut interest rates any further than it already has . The Fed lowered its economic growth forecast for the year. At the same time, it reaised its pro..

Determining molecular orbital theory : Draw three possible structures for the B3H8- ion. Clearly indicate any three-center bonds. Which structure is most plausible (considering molecular orbital theory)

Normalized equations and a sketch for each group orbital : deduce the SALC's not derived initially from the character table analysis. Provide normalized equations and a sketch for each group orbital.

Find the area of the trapezoidal cross-section : find the area of the trapezoidal cross-section of the irrigation canal shown below. Your answer will be in terms of h, w, and θ. Use theta for θ.

How to indicate the minimum efficient scale : Industry studies often suggest that firms may have long - run average cost curves that show some output range over which there are economics of scale and wide range of output over which long- run average cost is constant.

User Account

All Pages