Essay on the US Federal Reserve System

The US Federal Reserve System is mandated with the task to determine and implement monetary policies in the country. The decisions made by the institution are crucial in determining the overall economic state of the United States. This paper provides a summary of a selected article that discusses the current monetary policies in the United States and predicts a decision that Fed may take.

Article Summary

The article, “What’s wrong with current US monetary policy?” criticizes the Federal reserves’ monetary policies, and offers suggestions on how best the institution can deal with economic challenges. The author acknowledges that monetary policy operates in a very uncertain environment with long and variable lags (Orphanides par. 1). But even then, the policy advisers should strive to come up with the most appropriate system that avoids economic shortsightedness. According to the author, the Federal Reserve policies are inappropriately developed, and only seeks to address short-term gains on employment and growth. This has resulted in economic instability, lower growth, and higher inflation rates in the United States.

The author claims that Federal Reserve has placed undue emphasis on short-term employment. Since 2008, the various initiatives meant to control the rate of inflation have been somewhat ineffective (Orphanides par. 6). He blames Fed for its unwillingness, to initiate the process of economic normalization. The policies have subdued the gross domestic product growth, and at the moment, it is lower than it was expected. The short-term real interest rate has remained negative for a long period and the labor markets are far from normal.

The author, however, commends the current monetary policies for the increased rate of employment. The article makes some recommendations that Federal Reserve can undertake to correct what it terms as inappropriate monetary policies. The Fed needs to come up with effective systematic policies that seek to ensure price stability over the short and long term run (Orphanides par. 8). In conclusion, the author emphasizes much on the need for Fed to develop an accommodative stance that seeks to control the rate of inflation which he claims is currently way below its target.

Article Critique

The author makes a well-articulated analysis of the current monetary policy in the United States. He addresses, the impact of these policies on the economy and gives a genuine account of the state of employment, inflation, and interest rates in the country. The ideas in the article are reasonable and factual as the author gives a list of sources from where he got the information. Not only does the author address various economic issues resulting from Fed’s policies but he goes ahead to offer some possible solutions can minimize these problems.

The article can, however, not be described as perfect. The author appears to be too emotional in his arguments, a fact that may prompt readers to question his real motives. Much of his work seems to dwell much on the negative effects of the Fed’s monetary policies. Even though he offers some possible solutions for the stated issues, he leaves most them unaddressed.

Predicted Fed Decision

In future, the Federal Reserve might consider lobbying better fiscal and structural policies aimed at promoting and encouraging higher long-term productivity. Such policies might include sorting out the short-term employment and replacing it with long-term employment. Moreover, Fed will come up with various methods of maintaining price stability over a long-term run. This will contribute towards reducing unemployment rates and overall normalization of the economy.

Conclusion

According to the article, “What’s wrong with current US monetary policy?” Fed’s policies have not been successful the way people expected. This is evidenced by the rise in interest rates, inflation, and low domestic productivity. With appropriate monetary systems, this trend can be reversed. The article is insightful and has the necessary contents that economists may need to make conclusions on the current state of monetary policy in the US.

Works Cited

Orphanides, Athanasios. “What’s wrong with Current US Monetary Policy?” World Economic Forum, 2015, www.weforum.org/agenda/2015/11/whats-wrong-with-current-us-monetary-policy/. Accessed 14 Apr. 2018.