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Tuesday, December 14, 2010

Fed Sticks to Bond-Buying Policy

       This article is about the Fed and how they are sticking to buying $600 million in US Treasury Bonds and keeping the interest rates near zero. Even though consumer spending for Christmas has raised significantly this year, unemployment continues to remain around 10%. In addition, Congress is expected to approve a tax cut package for next year. This has not changed the Fed's mind about their policy.

      I do not agree with the Fed buying Treasury Bonds to boost the economy. This will lower unemployment but bring inflation up. Inflation will continue to increase over the years as unemployment remains the main focus for policymakers. The Fed should not worry so much about unemployment because it will eventually fall back to equilibrium. This all goes back to how the government should not involve itself in policies that do not relate to market failure. Unemployment is not a source of market failure, so therefore it should not be a focus for policies. I feel that this policy the Fed is following through with is a source of inefficiency, because it is not a pareto improvement. It will result in higher inflation rates which will decrease the value of the dollar. Maybe what the Fed needs to do (if they feel it necessary to get involved) is focus on inflation rather then unemployment.

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