Federal Reserve in a fix with the low inflation rates

Federal Reserve in a fix with the low inflation rates

The model of the economy which has been guiding the monetary policies in the past few decades, has said that the low levels of unemployment must lead to higher levels of inflation. At the time when this happens, the Fed must be responding with the raising of interest rates which is a move that is going to further ready the Fed for fighting the next possible recession where they would be required to cut the rates down again.

Presently though, the Federal Reserve has been faced with the remarkably low levels of unemployment and lower levels of inflation along with the lower rates of interest and all of them have been happening simultaneously and this has made sure that the bank does not have anywhere to go. Therefore. the question which has been arising is what the Fed is going to do at the time when the next recession has finally arrived and does the monetary policies actually need an overhaul. The bank has been taking a major look at themselves with the conclusions being drawn and any of the reforms being due going to be out later in the year. However, if the recent conference which featured Ben Bernanke in the weekend is indicative of the future, the officials of Fed have not been thinking out of the box.

The central bank has justified cause for concerns that any effort which is significant on their part for increasing the rates of interest may end up ruining the recovery or may well be the cause of the recession which happens next. There has been no hike in inflation post the great recession.

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