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Macroeconomy Article Analysis
An in depth analysis relating what you have read in the article to some of the models that covered in PowerPoint. Please use the IS-MP model to explain how the Fed conducts monetary policy. Include an explanation concerning whether the model used is the appropriate economic model to use to explain the contents of the article. Take up why it is appropriate and why it might not be appropriate. Address the time period the model covers (short run or long run) and the time period covered in the article you are analyzing. Fed’s Patrick Harker ‘Not Convinced’ a December Rate Rise Is PrudentBy Michael S. DerbyFederal Reserve Bank of Philadelphia President Patrick Harker said Friday he isn’t ready to support the central bank raising short-term interest rates again next month, given the modest outlook for inflation.“At this point, I’m not convinced a December rate move is the right move,” Mr. Harker said in an interview with The Wall Street Journal. “But I need to watch the data over the next few weeks” before determining whether it is prudent to boost the cost of borrowing again, he said.The current state of inflation argues against action, Mr. Harker said. “We’re not seeing the recent data telling us that inflation’s moving rapidly past our target. So I think we have some time to let this evolve,” he said.“In the beginning of the year, I had put in my forecast three 25-basis-point rate increases, and I haven’t moved from this too much,” Mr. Harker said. “Over the next year and a half, we can move slowly up to what I see as the nominal neutral rate, which I see as 3%.”Mr. Harker said the economy should continue to do well, but he flagged a rising tide of uncertainty among his contacts that gives him some pause. Trade and political issues and market volatility are giving many a sense of concern, Mr. Harker said, and he will monitor this as he thinks about how the Fed should manage monetary policy.The interview with Mr. Harker represented his first substantive public comments on the outlook since the rate-setting Federal Open Market Committee held its overnight federal-funds rate target range steady at between 2% and 2.25% earlier this month.The FOMC has raised rates three times this year, and it is expected to increase rates again when it meets Dec. 18-19. Fed officials generally support gradual rate rises as a way to temper potential inflation pressures in a strong economy while keeping activity moving forward. The Fed is expected to continue raising rates next year. Due to the rotation of Fed voting members, Mr. Harker will regain an FOMC vote in 2020.Some other Fed officials have grown more cautious about the outlook. Speaking in Spain on Thursday, Atlanta Fed leader Raphael Bostic said, “I don’t think we are too far from a neutral policy, and neutral is where we want to be.” He added: “We may not be there quite yet, but I am inclined to think that a tentative approach as we proceed would be appropriate.”Most in the Fed want to move monetary policy to a place where it is neutral in regards to its impact on the economy, while some have suggested the central bank may need to boost short-term rates to a level that would slow the economy somewhat. Mr. Harker said in the interview it is hard to know exactly how potent monetary policy is at any given point, and said that concept wasn’t critical to his interest-rate outlook.“I don’t think the goal is to become restrictive. The goal is to continue to allow the economy to grow,” Mr. Harker said. When it comes to rate rises, “we may inadvertently overshoot a little bit, but that’s not my goal. I’d like to get to neutral and stay there for a while and see how things evolve.”Mr. Harker’s caution over raising rates doesn’t mean he isn’t hopeful for the economy, he said. He described overall activity and job growth as strong and said he expects to see gross domestic product growth over 3% this year before it moderates. He also believes today’s 3.7% jobless rate will fall to 3.5% by next year before moving higher.Mr. Harker expects that inflation will slightly overshoot the Fed’s 2% target, but he added there is no reason to think a big surge is likely. He described the current state of price pressures as “well-anchored.”Mr. Harker said while he is sanguine about the health of banks, he does have concerns about unregulated financial activity and the state of leveraged loans. The high level of student loans is also a concern, he said, but he added none of this has risen to a level where he sees a broader threat to the functioning of the financial system.As for stock prices, “financial markets are clearly choppy, volatility has increased. Some of this is natural at this course in the cycle,” Mr. Harker said.He said officials should do all they can to be ready for when the next downturn arrives. To that end, he said it is important to do what it takes to get everybody working who wants to work, to make sure banks have the capital they need to withstand trouble and to fine-tune financial regulation.“It continues to be a very good economy, and this is the time in a good economy that we should start planning for when it’s not such a good economy,” Mr. Harker said.

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