Based on review of the summary issued on February 1, 2017 it is apparent that the labor market has strengthened noted by the recent low unemployment rate and rise in consumer spending. Although inflation has also increased it still appears to be below the 2% long term target, as such the FOMC will continue to support maximum employment and price stability by making gradual adjustments to the monetary policy. Going forward the stance of the monetary policy will remain accommodative resulting in expansion of economic activity, enhancement in the market place and strengthening labor conditions. The FOMC is expecting an increase in inflation to its objective of 2% and to maintain the federal fund at .50 to .75% which was the rate approved during the December 2016 FOMC meeting. They will consider many factors in determining the timing and amount to future adjustment to the federal fund rate including labor market conditions, inflation pressure and financial and international development, meaning the rate would be altered if actual employment and inflation differs from its forecast. The Federal Funds rate is expected to gradually increase due to the history of the rate which was reduced in September 2007 from 5.25% to the 0% - .25% range in what is known as a zero lower bound. These rates were kept extremely low during the global financial …show more content…
History is full of example of government financial institutions ignoring and adjusting rules when they directly conflict with the judgment of current leaders. Some proposals suggest the Fed should specify a monetary policy rule; this rule would determine how adjustments are made to the Federal Funds Rate, inflation Rate and interest rate and provide deviations when the rule is not followed. In recent years, a policy rule known as the Taylor rule, named after John Taylor of Stanford University, became a controversial issue. The equation provided a recommended setting for a central bank’s interest rate target. The equation is based on values and targets for variables including inflation, output and unemployment. The policy rule helps provide an understanding about the future monetary policy which is used to predict households spending and businesses investment and decisions. Although a rule based monetary policy would provide additional insight on how the FOMC views the state of the economy and regarding decisions made, the monetary policy should be systematic and involve complex judgment rather than being automated (based on an equation or set rule). In recent years the Fed has increased transparency of its actions since the financial crisis and as a result has disclosed a lot more information regarding its