Minutes but they should care about it

 

 

 

Minutes of
the Federal Open Market Committee. (2008, January 30). Retrieved November 26,
2017

Meeting of
the Federal Open Market Committee on January 29-30,2008. (2008, January 30).
Retrieved November 26, 2017

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FOMC
statement. (2008, January 29). Retrieved November 26, 2017

Federal
Reserve Economic Data | FRED | St. Louis Fed. (n.d.). Retrieved December 08,
2017

Board of
Governors of the Federal Reserve System (2008, January 30). Minutes of the
Federal Open Market Committee. Retrieved November 26, 2017

Board of
Governors of the Federal Reserve System (2007, February 14). Sections of Part
1. Retrieved November 26, 2017,

Reference Page

 

            The monetary
policy has power over our economy and everyday life, whether people like it or
not. People might not full, understand what the monetary policy is all about,
but they should care about it because it does affect them in the long run. The
monetary policy helps keep economic activities stable, and under control.  The January 29, 2008 monetary policy change
was crucial because it was during the time our economy hit a recession and
financial crisis. The Federal Reserve had to make sure that their alterations
to the monetary policy would help people during times of need. They were hoping
these changes would help to promote growth, and to get risks into the economic
activity. Overall, they still had to watch the inflation developments very
careful to make sure it does not get out of hand. It would also help the
inflation, GDP, and unemployment rate get back to the level they are supposed
to be at. The Federal Reserve was hoping that these changes that they have
applied would help the economy in years to come after 2008. The monetary policy
aimed to increase the money supply and to achieve certain goals in the process.
The goals of the monetary policy were to lower unemployment, make prices constant
as well as maintain long-term interest rates. It also hoped to accomplish
economic growth by increasing economic activity. Without the monetary policy
changes that happened on January 29, 2008, the economy would still be in a
financial crisis, and people would not have the same economy they do today.

Conclusion

            To summarize, the
monetary policy changes implemented on January 29, 2008, by the Federal Reserve
lowered the target of the federal funds rate from 50 basis points to 3%. They
were hoping this change would help to promote growth and to ease the risks to
the economic activity. The prediction for the long run with policy change
included many factors. According to Board of Governors of the Federal Reserve
System (2008), “Beyond 2008, there are many factors were expected to sustain
economic growth, this includes an improvement in the housing markets, lower
interest rate with the easing into the monetary policy to date, and the changes
to policy going forward, and anticipated reduction in the financial market.
Real GDP was predicted to accelerate in 2009 and by 2010 to develop at or above
the participants evaluations of the rate of trend growth” (p.1) The Federal
Reserve also predicted that the unemployment rate would be transformed as well.
The unemployment rate was forecasted to increase because the Federal Reserve
predicted that inflation would decrease. The unemployment rate was predicted to
change a bit in 2009 and then to be lowered in 2010 as the production progress
started to pick up. Both years, however, the unemployment rate was higher than originally
anticipated at the time of October’s meeting (Board of Governors of the Federal
Reserve System, 2008, p.1).  In the long
run, with the monetary policy in place, the Federal Reserve estimated that
there would be changes all around for the GDP, inflation, and unemployment. That
these changes would help our economy, and people in the long run especially because
a recession was taking place.

Recap
and Prediction of Long-Run with Policy Change

On
January 9th, 2008 the economic data at that time was looked over by Federal
Reserve. The data that was provided explained that there was a weakness in home
sales and employment. According to Board of Governors of the Federal Reserve
System (2008), “FOMC members expected the output would grow at a pace that is
below the trend rate in 2008, due mainly to a deepening of housing contractions
and the shrinkage in the convenience of households and businesses credit, and
the unemployment rate would increase” (p.1). 
Without the monetary policy change on January 29th, 2008 the
long run prediction was that the economic growth would remain weak, and the
inflation rate would not be at a steady rate. The unemployment, on the other
hand, would decrease. Also, the weakening of house sales and prices would
become a downside risk for the economy. Overall the monetary policy would not
achieve its purpose, and the money supply would keep decreasing as well.

 

Table I

            Before the monetary
policy change was even put into action on January 29th, 2008, the Federal
Reserve had their own thoughts, and suggestions of what was going to happen. The
Federal Reserve had an economic projection for the years of 2007 and 2008. The
projections established that the participants were expecting sustainable
expansion for real economic activities during the next two years ,if a suitable
path for the monetary policy was in place (Board of Governors of the Federal
Reserve System, 2007, p.1). The Federal reserve also predicted there would be an
increase in real GDP, unemployment, and inflation. According to the Board of
Governors of the Federal Reserve System (2007), “Federal open market committee
forecasts the increase in real GDP is 2.5% to 3 % over the fourth quarter of
2007 and 2.75 % to 3 % over the fourth quarter of 2008. The unemployment rate
is 4.5% to 4.75% in the fourth quarter in both 2007 and 2008. For inflation,
the price index for personal consumption disbursement would increase from 2% to
2.25% over the fourth quarter of 2007, and 1.75% to 2 % over the fourth quarter
in 2008” (p.1).  During the committee’s
meeting in December of 2007, they noticed that the economic activities were declining
rapidly in the fourth quarter. The housing contraction was developing, and the
sector was becoming weak than it was in previous meetings. Table I demonstrates
the GDP, inflation, unemployment before the monetary policy change occurred.

Trend
Data and Prediction Long Without Policy Change

Today,
money plays a huge role in people’s lives in various ways. Not only does affect
their life, but it also distresses various types of economic variables that are
very significant in our economy. The monetary policy has a big impact on the
inflation rate because the inflation rate also influences the unemployment
rate. For example, if the inflation rate increases, the unemployment rate will
decrease. If the inflation is reduced, the result is more demands of good and
services. The more demand for goods and services, the more demand for employees
to produce them. When applying an active monetary policy, the Federal Reserve will
be able to keep stable prices which will result in long-term economic growth
and to increase employment. People should care about the monetary policy
because it helps keep the unemployment rate and inflation at a steady level. The
monetary policy has a large impression on the labor market and plays a vital
role in endorsing maximum employment. The monetary policy helps us to keep
inflation at a certain level because if inflation rises it will lower the value
of money. Even though people might not know or fully understand what the
monetary policy is, it does have an influence on everybody in today’s economy,
and it always will.

Introduction

 

January
of 2008 was an eventful, stressful time for the Federal Reserve and the economy
as well. Not only was a financial crisis looming, but the Federal Reserve had
to make a tough decision about whether to apply changes to monetary policy as
well. The economy during this time was growing slowly and was heading towards a
recession. It was confirmed that there was a braking in economic growth in the
fourth quarter in the year of 2007. At the same time there was still a weakness
in house sale prices and in the shrinking of the credit situations for all
households and businesses. This appeared as disadvantage and a risk to the
economic growth as well. FOMC (2008) stated, “The Federal Reserve decided to change
its target for the federal fund rate from 50 basis points to exactly 3%. The
reason for the change was that the financial markets were under a great amount
of stress, and the credit was tightening for some businesses and households.
Some recent information shows a deepening of the housing contraction and
softening in the labor market” (p.21-22). With this change in place, they hoped
that inflation would be moderate for future quarters. The Federal Reserve also
knew that the downside; the economic growth would remain the same. They still
wanted to look after, and monitor the inflation expansion cautiously.

Executive
Summary

January
29th, 2008 Monetary Policy Change

Dr. Birkland

12/12/2017

Jill Nelsen