Article;
http://economictimes.indiatimes.com/news/international-business/fed-nears-agreement-on-how-to-exit-stimulus-but-timing-unclear/articleshow/8454808.cms
Comment;
Exiting stimulus before a 5% inflation achievement would be a bad idea for the sake of economy's confidence. Raising interest rates, when the inflation target is achieved, would do the job automatically with the market mechanism. Means people would be induced to invest in the assets the central bank is investing in right now. But unless the government commits and achieve inflation target, and people are confident that the economy is on its usual track they are not going to invest the reserve they have accumulated during the recession and liquidity tarp. If consumption has returned to pre-recession levels its time to use the money for investment purposes. The two main functions of money in the macro economy.
http://economictimes.indiatimes.com/news/international-business/fed-nears-agreement-on-how-to-exit-stimulus-but-timing-unclear/articleshow/8454808.cms
Comment;
Exiting stimulus before a 5% inflation achievement would be a bad idea for the sake of economy's confidence. Raising interest rates, when the inflation target is achieved, would do the job automatically with the market mechanism. Means people would be induced to invest in the assets the central bank is investing in right now. But unless the government commits and achieve inflation target, and people are confident that the economy is on its usual track they are not going to invest the reserve they have accumulated during the recession and liquidity tarp. If consumption has returned to pre-recession levels its time to use the money for investment purposes. The two main functions of money in the macro economy.
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