Reducing US Unemployment Rate: To Members of Federal Open Market Committee

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The unemployment rate continued to rise and push the 8.5% this March from 8.1% in February 2009, according to statistics released by the U.S. Department of Labor. When the recession began in 2007, a whooping 5.1 million Americans have lost their jobs with 3.3 million lost in the last five months to March. Household Survey data released in April indicate that the unemployed amounted to 13.2 million.

In March alone the unemployed increased by 694, 000 resulted in an unemployment rate of 8.5%. In the past 12 months, a record 5.3 million people were unemployed, with an average unemployment rate increased 3.4% takes place in the last 4 months (BLS, 2009)

In March, the unemployment rate among adult men was 8.8%, Hispanics was 11.4%, adult women was 7.0% and for whites was 7.9%, blacks was 13.3% while for adolescents was 21.7% (St. Louis Fed Reserve Bank, 2009)
Traditional macro-policies to reduce unemployment

expansionary monetary policy should be used together with other reforms in the labor market. Expansionary monetary policy as reducing the rate of federal loans, in turn, reduce the rate of interbank lending and boost aggregate demand in the economy. To help stimulate demand for more funds should be used meaning federal funds must be taken to the banks so they can borrow and lend to others. By increasing the supply of federal reserve on the market, market liquidity is higher and therefore drops the funds rate. The Federal Reserve should also buy more titles on the market. This has the net effect of increasing the reserves of banks, increased interbank lending system (the federal funds market) and thus the federal funds rate will be reduced significantly.

The discount rate, the rate at which banks loan Federal Bank, must be reduced to below 100 points at times has been fixed. The federal funds rate in December 2008 had been established between 75 and 100 points (FOMC, 2009)

This should, for example, be reduced to 25% to encourage lending from commercial banks which in turn are injected into the market and reduce the credit crunch. This policy of monetary easing a long way in the use of credit to financial institutions that were hard hit by economic recession. Subsequently, the effect of reducing unemployment and investing in the poor macro-economic environment.

interest rate changes have profound effects on demand in an economy, and that can significantly alter rates of the loans. The lower the real rate higher the amount that banks lend to people which will increase overall spending in the economy and stimulate demand for labor. Low interest rates also increase the demand for private bonds and other instruments, thus increasing stock price. People with the most lucrative stock will sell the shares at high prices and make them richer. A low interest rate environment has the effect of reducing the value of U.S. dollar increasing domestic spending on goods manufactured in the U.S. and services. It follows therefore that a reduction in interest rates can have a major impact on the economy which in turn increases the potential of the economy by increasing production and use of production factors.

However sustained low interest rates, in turn raise prices and wages in the economy, especially in the short term (FOMC, 2009)
Unemployment requires a new approach to monetary and fiscal policies

Since the increase in unemployment triggered by the current financial crisis, it is imperative that the policy of turning around the economy will have an inevitable effect on employment. For decades policy makers have basically relied on fiscal and monetary policy to influence the direction of the economy (Farmer, 2009)

Monetary policy is mainly developed in the reduction of interest rates to encourage spending. But looking at the bills consecutive three-month we realize that the nominal interest rate is practically zero, which essentially limits the effectiveness of monetary policy. They are questioning the effectiveness of tax incentives that was released in February. This stimulus package is further aggravating the existing burden in China, the U.S. has invested $ 1 billion in U.S. debt and more than 750 billion U.S. dollars has been aggravated by the stimulus packages (Barker and Barrionuevo, 2009)

Thus attempts to increase total employment is now adding unexpected burden on future generations, taking into account the already existing burden of Medicare and Social Security (Farmer, 2009)

Perhaps the viable option in the Federal Reserve to buy and sell stocks. Against the classical view that there is a natural rate of unemployment in particular, Keynes says that there is indeed a series of unemployment rates. Keynes would be right, because several factors influence the rates of unemployment range from consumer confidence and other social inefficiencies. Variations between the natural rates of employment have been observed through recessions and this is mainly attributed to the confidence of market participants. Therefore, to counter the changes, it is wise enough for the Fed to consider that influence the stock price. It is time that the Fed thought it affect the stock market index, in addition to interest rates. This is how the federal funds rate is used to manage inflation and changes in the rate of stock price to influence trust and elect the balance of employment is high. To begin the Fed should set a specific index covering stocks traded to market capitalization weighted and reset periodically show the changes in the size and composition of firms. Second, the Fed can buy all the shares of the Company trade on current market prices in line with the weights. The purchase of these assets will be financed by floating 3-month Treasury bills backed by the Treasury. The prices of these values ​​should be the same as Treasury bonds as perfect substitutes. Third Fed has to decide its position in the stocks of $ 800 million in power before the expansion as $ 1, 600 for a beginning and thus have no effect on the federal debt. This is against fiscal expansion applied by the government. Fourth, the Fed should establish a market in the new index and be willing to negotiate a price to be determined periodically. The price should take into account the interest rate policy (Farmer, 2009)


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