RIDGE POLITICAL REVIEW
  • Home
  • Domestic
  • International
  • Opinions
  • Economics
  • Local
  • About
  • Contact
  • All Articles

All Articles

An Overview on The Federal Reserve and Nellie Liang

11/5/2018

0 Comments

 
Picture

By Aadhavaarasan Raviarasan

In September of 2018 President Donald Trump nominated Nellie Liang - a Senior Fellow at the Brookings Institute, longtime Federal Reserve staff member who is an expert on financial regulation, and holder of a Phd in economics from the University of Maryland -  to the Federal Reserve Board. To grasp the impact of this nomination, one must first understand primary function of the Federal Reserve: the raising or lower of interest rates.

Every quarter (three months), the Federal Reserve (the Fed) decides whether to raise or lower interest rates. When the Fed raises interest rates, it decreases the amount of money in the economy, making each dollar more valuable, which increases the prices of goods across the economy. The Fed employs this strategy during times of prosperity to prevent runaway inflation, which occurs when there is an abundance of supply (too many investments are being made) that diminishes the worth of each dollar, generating massive price increases across the market. Runaway inflation is especially harmful when price growth outpaces wage growth. When the Fed decreases interest rates, it increases the amount of money in the economy, making each dollar less valuable, generally increasing prices in the economy. This is done in times of economic downturn in order to revive the economy, since this provides extra monetary resources to invest and jump start the economy out of rock bottom.

The nomination of Ms. Liang into the board grants her the power to decide the direction of monetary policy - determining if interest rates are raised or lowered and by how much - giving her plenty of power on the direction of our economy.

Insofar as she about to gain a massive amount of power, it is probably important to identify exactly who Ms. Liang is and what she specifically intends to do with her power. Liang’s first position of prominence was as the premiere head of a new division created after the 2008 financial crisis research financial stability issues. Ms. Liang’s position on monetary policy is one geared towards harsh restriction. Indeed, she advocates against the dropping of interest rates in order to recover the economy - believing that the markets ought to recover themselves with no help - and the raising of interest rates in order to curb excesses in the market. Indeed, her ideology on the economy has 2 key central tenants, (1) the establishment of a strong regulatory framework, and (2) early and decisive action to any market shifts.

Moreover, she also believes that, based on our current track, a “recession which will be severe” is bound to occur. In order to deal with this, Liang has supported raising interest rates in order to act as more ammo to drop interest rates by massive amounts upon the onset of the crisis. However, while these may be her set positions towards monetary policy as of right now, Liang is known for having a strong appetite towards risky policies, willing to deal with uncertainty when new problems pop up.

Her position is consistent with the current track of the Federal Reserve, which has been dramatically surging interest rates in this current time of economic prosperity. Her reinforcement of this policy has two possible implications. The first possible implication hinges on the Federal Reserve’s predictions being correct; if it is right that the economy is seeing strong growth and and unemployment reduction, it will continue taking the appropriate stance of raising rates, keeping the economy stable. In this scenario, the nomination of Ms. Liang proves beneficial in that it maintains current policy.

The second possible implication will occur if the Fed’s predictions are inaccurate. If the economy is not as strong as they think it is, then the raising of interest rates will only reduce the necessary supply of money to maintain job growth. The logic is simple: if a business is not doing super well, then reducing the amount of money it has decreases its resources to hire or invest. This can send a struggling or even stagnating business past the brink of survival, causing a chain reaction of bankruptcy and corporate collapse that could potentially end in recession. In this scenario, the nomination of Nellie Liang proves to be a disastrous choice, locking in a policy that will only end with the collapse of the American economy.

Which scenario is correct? Well, no one knows. The Fed itself struggles with uncertainty in determining the optimal time to raise interest rates and how far the economy can go without devastating inflation. It can only estimate, predict, and hope, which is why raising interest rates always hurts someone. All things considered, including her experience and credentials, Ms. Liang is a good pick for the reserve: if we have to choose someone to make predictions, we should choose an expert.

​
0 Comments



Leave a Reply.

    Archives

    December 2022
    November 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    March 2021
    February 2021
    January 2021
    November 2020
    October 2020
    September 2020
    July 2020
    June 2020
    May 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    September 2019
    June 2019
    May 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    June 2017
    May 2017
    December 2016
    November 2016
    June 2015
    May 2015
    January 2015
    November 2014
    February 2014
    December 2013
    August 2013
    May 2013
    March 2013
    November 2012
    September 2012
    April 2012
    March 2012
    February 2012
    January 2012
    November 2011
    October 2011
    September 2011
    June 2011

    Categories

    All
    Aadhavaarasan Raviarasan
    Adam Smith
    Albert Wu
    Alex Liao
    Alex Timoney
    Alicia Jen
    Alison Shim
    Andrea Lan
    Andrew Falduto
    Anvi Mahagaokar
    Atreya Misra
    Ayla D'Silva
    Bardia Vaseghi
    Benny Sun
    Bharat Sanka
    Brandon Lu
    Brian Wen
    Brinda Gurumoorthy
    Caitlin Schiffer
    Camille Shen
    Caroline Margiotta
    Caroline Sha
    Catherine Chen
    Cathy Chen
    Chloe Yang
    Christine Wang
    Daniel Pittaro
    Daniel Zhang
    Davis George
    Deeptanshu Singhvi
    Dilara Shahani
    Ellee Tomaru
    Emily Pan
    Emily Wang
    Erin Flaherty
    Felix Zheng
    Hitha Santosh
    Howard Wei
    Injae Lee
    Jacob Clott
    James Gao
    Jasmine Xie
    Jedson Boyle
    Jennifer Huang
    Joey Walter
    Jonathan Nemetz
    Jon Jen
    Julia Roos
    Kaitlin Smalling
    Katherine Wang
    Katie Kleinle
    Kevin Tang
    Kevin Yang
    Kishan Gandham
    Kunal Damaraju
    Kyanna Ouyang
    Logan Aviles
    Lucas Canteros-Paz
    Maggie Hsu
    Mariam Khan
    Mark Stachowski
    Mason Krohn
    Meghan Mangini
    Michael Shaw
    Mimi Petric
    Namita Kalghatgi
    Noah Smith
    Oliver Tang
    Omar Bekdash
    Pasha Saidi
    Priya Mullassaril
    Raheel Abubakar
    Ranen Miao
    Rayhan Murad
    Robert Johnson
    Ryan Walsh
    Saamia Khan
    Saloni Singhvi
    Sam Klein
    Sarah Ouyang
    Shaina Spector
    Shaurya Ganjoo
    Shiam Kannan
    Sunjay Melkote
    Tim O'Shea
    Tim Tang
    Vicki Liu
    Victoria Lu
    Vivek Gurumoorthy
    Wei Wen
    Willa Yu
    Zayna Kutty

rpr

About
Home
Read All
​
Contact

Sections

International
Domestic
Economics
​Opinions
Local
​
Search Site
© COPYRIGHT 2018 ALL RIGHTS RESERVED.
  • Home
  • Domestic
  • International
  • Opinions
  • Economics
  • Local
  • About
  • Contact
  • All Articles