Federal Reserve Open Market Committee

Wall Street Journal (WSJ) published an article with the headline: "Fed slow growth",  pointed out that the assessment of the Federal Reserve Open Market Committee on Economic Growth is too high since crisis Finance is correct. Therefore (WSJ concludes), monetary policy will not work effectively and attempt to use monetary policy for  economic recovery should not continue.


                                               Ben S.Bernanke

However, the publisher of the WSJ gave incorrect conclusions about the forecast of excessive growth of recent Fed. More importantly, they were missing when not noting that while the Fed was too optimistic about the growth of the economy, the Fed was also pessimistic about the unemployment rate, and it rose more sharply than expected. The unemployment rate is a good indicator for the cyclical conditions than the economic growth rate.

WSJ also points out that monetary policy is not the best medicine for the economy, so we have to stop using it. This was also acknowledged by the former Federal Reserve chairman, Ben S.Bernanke. However, Bernanke did not agree with the conclusions of the WSJ. According to him, the correct conclusion is not cancel the policy of increasing interest rates, which is to combine the policy of increasing interest rates with a number of other policy instruments . WSJ expect Bernanke to challenge some of the policy as a program which is structured entirely to the development of infrastructure, thereby supporting the growth of the economy in the long term, and create employment. As for interest rate policy, we must not give up but to combine it with other policies, including fiscal policies.

Conclusion: The Fed will raise interest rates but they will implement other policies before improving economy. The first is employment, then the economic growth. So from this time decision to raise interest rates might take a longer time

Referenced article on the Blog of Ben S.Bernanke.

Written by Peter Nguyen.