Wednesday, 25 Nov 2020

Found a way to strengthen the US economy

The us Federal reserve system (FRS), which serves as the Central Bank, has found a new way to strengthen the country’s economy. This is the view of many analysts quoted by CNBC.

For a long time, it remained at the level of two percent per annum, while the real indicators of consumer price growth at the end of the year were lower. Normally, this would not pose a threat to the economy, but in a crisis and low global demand, it becomes an important factor slowing overall growth.

A former member of the Board of Directors of the Federal reserve Randall Kroshner believes that the regulator has a chance to look into the longer term. “Usually, when inflation approaches two percent, they just say: “Now we will tighten policy and raise rates.” But now they have the opportunity to apply an alternative strategy, ” the economist notes.

At the same time, experts point out, the fed should behave carefully, otherwise market participants may think that the regulator has let the situation out of control, and you can expect too sharp price growth-up to four percent.

The rate of inflation is one of the most important economic indicators and directly affects the growth of GDP, which is measured as the total market value of goods and services produced in the country. Many financiers point out that it would be more correct to calculate GDP adjusted for inflation, but their comments are rarely taken into account.

Managing the level of inflation is considered a key task for Central banks around the world.

It is solved with the help of several tools. The main one is the regulation of market rates through the main rate (in Russia it is called the key rate, in the US — the Federal funds rate, or the base rate). The fed cannot influence it directly, but it can set a target level that it will later seek to achieve through open market transactions — transactions with major banks and other financial organizations to buy or sell securities, mainly Treasury bonds. The regulator can also change the standard of mandatory reserves that banks must hold on their accounts and cannot issue on credit, which is calculated as a share of the funds raised by a credit institution.