Federal Reserve Board and the Biggest Challenge Facing the US Economy Today
Course: Econ 311 Money and Banking
Please write an essay on the following questions. (Read the questions and requirements carefully)
Imagine that you have been given the opportunity to serve as Chair of the US Federal Reserve Board.
1) Your assessment of what you consider to be the biggest challenge facing the US economy today. State the challenge, say why it is the most important problem in the US economy today, say whether it is a new or an old problem and how it emerged, and state the main effects on the economy and the people of the US. Illustrate your discussion with some quantitative evidence on the particular challenge you’ve identified (in the form of figures, tables, etc.).
2) What you would propose as the best solutions or instruments that the Federal Reserve can use to help address the problem you’ve identified, how they would be rolled out/implemented, why and how you believe they would be effective in solving the problem.
Length: 3 pages
Bibliography: Present a bibliography comprising of at least 5 references. These references must be cited/referenced in the text.
Data sources: Present the sources of the data that you use in the text and in the tables and graphs.
Please get it done by Thursday midnight.
One Day in the Seat of the Chair of the Federal Reserve Board
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One Day in the Seat of the Chair of the Federal Reserve Board
The Federal Reserve (Fed) plays a significant role in the US economy. It influences money and credit conditions to facilitate full employment and price stability in the economy, among other roles (Federal Reserve, 2022). In this essay, I discuss what I would consider the biggest challenge facing the US economy today if given an opportunity to serve as the chair of the Federal Reserve Board. I also discuss the potential solution to this problem and how it can be implemented to support the US economy.
The Challenge
I consider the current labor shortage the biggest challenge to the US economy today. According to Guilford (2022), the gap between labor demand and supply is at the center of the current economic struggle in the US. The demand for labor is higher than the supply, which has left most employers with unprecedented job openings. As shown in Figure 1, the ratio of job openings to potential candidates is considerably high. As of July 2022, the number of job openings was 11.2 million and the number of hires within the same period was 6.4 million (US Bureau of Labor Statistics, 2022). This left almost 5 million unfilled job positions. This gap will determine whether the US has a soft economic landing following the aftermath of the COVID-19 pandemic.
I would consider labor shortage the most critical problem in the economy today because it has contributed to the increase in prices over the last several months. According to a report by the Congressional Research Service (2022), the labor shortages in the US have contributed to supply disruption in the country, consequently increasing the prices of commodities. The rise in the prices of commodities is partly associated with the cost of business incurred by firms through an increased cost of hiring. Many employers have been forced to increase wages and salaries to attract new employees and fill the job openings. According to Guilford (2022), wages and salaries for private sector employees increased by 5.7% compared to last year. This increase in wages and salaries might seem good for the economy at face value. However, it has some negative effects on the economy because the increased cost of hiring is transferred to the consumer, hence the increase in prices of commodities. In addition, high wages and salaries increase the demand for products, further fueling inflation.
Figure 1: Job Opening to Job Candidates Ratio, 2005-2021
Source: (The Federal Reserve, 2022)
The labor shortage is not a novel problem. According to Tito (2018), some industries, such as manufacturing, had already experienced labor shortages pre-pandemic, although the gap between labor supply and demand had begun to shrink. However, the COVID-19 pandemic exacerbated the problem, which now contributes to rising inflation. Prolonged labor shortages will have dire effects ...