Interest Rate and Mortgage Market Article Review

Open, View, and/or
Download this Document

Total Length: 1282 words ( 4 double-spaced pages)

Total Sources: 2

Page 1 of 4

Defense of the Fed's New Interest-Rate Policy, which was published by The Wall Street Journal on January 6th, 2013, financial reporters Frederic S. Mishkin and Michael Woodford carefully craft a justification of the Federal Reserve's latest revision to its federal-funds rate target. The purpose of the article is to inform readers about the Fed's recent Federal Open Market Committee (FOMC), which resulted in the decision to keep the federal-funds rate near zero with a contingency based on the national unemployment and inflation rates. By linking the federal-funds rate target to a baseline of 6.5% unemployment, and a predicted rate of 2.5% inflation, while also providing public notice regarding its previously private policy criteria, the Fed is renewing its efforts to stabilize an economy battered by a prolonged recession. As Mishkin and Woodford state in the article, this "commitment not to raise rates in the future as soon as might have been expected is an obvious way the FOMC can loosen current financial conditions" (2013), because when borrowers are secure in the knowledge that their interest rates will remain steady the flow of investment capital improves dramatically.

While the authors remain supportive of the Fed's latest policy revision, they also express a series of reservations regarding the overall strategic objectives associated with this shift, stating unequivocally that "the Fed's new approach has invited confusion about its longer-run policy targets" (Mishkin & Woodford, 2013). Their main point of contention appears to be the fact that on January 25th, 2012 the Fed explicitly stated its intention to avoid specifying a numerical target for maximum levels of sustainable unemployment, as this sector of the national economy remains outside of the Fed's recognized jurisdiction. As the authors of this article view the issue, the Fed's recent announcement that the federal-funds rate target will be tied directly to specific unemployment and inflation rates was not made with the proper level of clarification, allowing public opinion to shift to the point that "many have read the FOMC statement as an important departure from the policy framework codified as recently as January 2012" (Mishkin & Woodford, 2013).

Stuck Writing Your "Interest Rate and Mortgage Market" Article Review?

View All Our Example Interest Rate and Mortgage Market Article Review

Have A Custom Example Essay Written

Because the authors of the article agree with the fundamental principles underlying the decision to make federal-funds rate criteria a matter of public record, the remainder of the article is dedicated to offering direct advice aimed at improving the Fed's messaging and public relations. Mishkin and Woodford remind readers in the distinctively droll tone made famous by The Wall Street Journal, "the central bank needs to reiterate that it does not have a 'target' unemployment rate and is not determined to achieve a specific unemployment rate regardless of the amount of monetary stimulus required to reach it (because) that type of overreaching ended badly in the 1970s, with rising inflation and unemployment" (2013).

After a close reading of the article summarized above, an informed reader is left to ponder a series of intriguing questions: What are the external economic factors which motivated the Fed to make such a sudden shift in its public monetary policy? How were the rates of 6.5% unemployment and 2.5% expected inflation calculated, and why should the federal-funds rate target be tied to these apparently arbitrary figures? These questions are important to consider because the near-zero funds rate currently in place is critically important to the economic resurgence taking place, and unless the motivations for maintaining this federal-funds interest rate are made eminently clear consumers, investors, and banks will lack the financial foresight to make the most profitable and productive choices.

Financial reporter Al Yoon authored an article entitled Private Mortgage Market Gains Momentum After Crisis, which was published by The Wall Street Journal on January 28th, 2013 in response to a resurgence in the previously vilified mortgage securitization industry. The purpose of the article is to inform readers about the ongoing rebound within the controversial….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Interest Rate And Mortgage Market" (2013, February 19) Retrieved April 26, 2024, from
https://www.aceyourpaper.com/essays/interest-rate-mortgage-market-104020

Latest MLA Format (8th edition)

Copy Reference
"Interest Rate And Mortgage Market" 19 February 2013. Web.26 April. 2024. <
https://www.aceyourpaper.com/essays/interest-rate-mortgage-market-104020>

Latest Chicago Format (16th edition)

Copy Reference
"Interest Rate And Mortgage Market", 19 February 2013, Accessed.26 April. 2024,
https://www.aceyourpaper.com/essays/interest-rate-mortgage-market-104020
   

Open, View, and/or
Download this Document
order custom essay example