Article Review
In spite of the good performance of the housing sector and creation of considerable number of new jobs in the US economists have expressed apprehensions that the economy is approaching a recession . This fear is based on some indicators that have shown weakness in recent times. The growth rate has stagnated in the last quarter of 2015 are quite a low rate. It has become more difficult for the large businesses to take loans from the banks as the norms for taking loans have tightened. Profits of the corporate sector are sinking. Both the manufacturing and the non-manufacturing index of the Institute of Supply Management has fallen drastically in the last few months, indicating dismal performance of both the manufacturing and non-manufacturing sector. In addition to this the financial sector has also shown weakness recently.
Objective of the Central Banks
The recession of 2008 has seen plunge in the price level that has affected production and growth adversely. The central bank since then has taken steps to keep the inflation rate at 2% level but this objective has largely remained unachieved.
Causes of Failure of the Central Bank
The central banks particularly the Fed has failed to achieve the inflation target of 2% though a large amount of money has been injected in the economy through the quantitative easing policy leading to large amount of asset build up for the central bank. Economists opine that this failure was due to the emphasis on the monetary path towards achieving growth and stability targets. Though fiscal stimuli was provided productivity has not increased . As a result, wage rate remained stagnant contributing very little to the government exchequer by way of taxes. The government remained indebted. But wage rate and prices did not increase.
Two Parts of the Policy Options
Economists point out that quantitative easing should be accompanied by qualitative changes in the economy. Thus, monetary expansion should be complemented with fiscal positions that tend to improve productivity and provide incentive for technological improvement. Thus the policy options are a combination of monetary stimulus and comprehensive fiscal strategies and not monetary expansion in isolation .
Works Cited
The Economist. "Unfamiliar Ways Forward." The Economist 20 February 2016. <http://www.economist.com/news/briefing/21693205-policymakers-rich-economies-need-consider-some-radical-approaches-tackling-next>.
