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Members of the FOMC believe that the growth of the world trade and the US economy is generally affected by the changes in fiscal situation of the US.
Among the significant factors they deliberate on include the fiscal policy, employment, and general growth of the economy. This reflective treatise attempts to explicitly review the economic issues discussed by the FOMC on 28th January, 2014.
The FOMC Meeting
From the previous meeting, issues of the governance of the US financial institutions and their mandates in the management of the economy took pivotal role in the fiscal policy discussions.
As of 28th January 2014, the FOMC suggested that the Federal Reserve agency should oversee the US financial system to ensure its effective operation and oversee compliance with the fund (Federal Open Market Committee, par. 6).
Although this mandate has been changed to encompass current financial situation, it has been opposed by the shareholders who have large quotas, and those who control the governance structure of the fund.
The committee members believe that the mandate of the Federal Reserve institution needs to be expanded from its main functions in exchange rates and balance of payment controls to the real economy and actual issues that will ensure global financial stability of the US economy.
As noted by the committee, a few relevant lessons from the recent financial crisis are related to the fact that the real and monetary financial element of the US economy is not separable to the levels of the imagination of the current orthodoxy of the rational expectations (Federal Open Market Committee, par. 8).
Initial orthodoxy which dictated that financial markets get self-stabilized resulted in a rather realistic appraisal of negative spillovers and unstable properties. Subsequently, the objective of ensuring financial stability is deemed to be important for both the US economy and individual nations.
The FMOC proposed several policies that can be put in place to mitigate the increasing inflation rates and unemployment in the US economy. A number of ‘contractionary’ fiscal and the monetary policies were suggested as significant towards controlling inflation.
Some of the fiscal policies entail reducing disposable income by increasing direct taxes, reducing government taxes as well as the amount of government borrowing. These fiscal policies if implemented will reduce the aggregate demand in the US economy.
This will cause the price level to decline, hence resulting in a reduction in the rate of inflation (Federal Open Market Committee, par. 7).
However, the committee noted that this cannot be used to predict unemployment since different causes of market volatility have different effects on other variables rather than unemployment only to focus the growth rate.
The US’s strong dollar policy functions was also discussed on the postulation that a stronger dollar exchange rate is beneficial in short and long term interest of the American economy.
Reflectively, strong dollar policy is pushed through a continuous system that encourages foreign holders of the bonds to purchase supplementary treasury securities.
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Moreover, the strong dollar strategy functions to lower the inflation, increase foreign investment and eventually keep the strategic role of the US dollar in the global financial arena (Federal Open Market Committee, par. 6).
In addition, the FMOC committee reviewed the effectiveness of the interest rate parity condition of the US economy as a non arbitrage condition that represents the equilibrium state at the point in which investors in that market will show indifference to the rates of interest that are available on federal reserve deposits.
They proposed a hybrid system to minimize the interferences that the government might have on the US market economy (Federal Open Market Committee, par. 9).
Federal Open Market Committee. Meeting calendars, statements, and minutes (2008- 2014). 28 Jan. 2014. Web. <https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm#20363>