MONEY MATTERS

The Fed chairman has said that the economy is recovering but slowly. This is not true, the GDP is still rising but the growth is not fast enough to bring own unemployment. A 2.5% growth is needed to keep unemployment from rising, but the current growth is somewhere between 1 and 2%. There is a chance that in the coming months this will slow down. The Fed people are optimistic that there will be gradual return to higher levels of resource utilisation. People are evading responsibility and sugar coating the economic reality. If the Fed people admitted that the economy is not recovering then there will be pressure for them to work more. So they have settled for a recovery that is not there.

Aside from telling the truth the Fed officials have a number of options to do. They can buy more long-term and private debt; they can push down long-term interest rates by announcing their intention to keep short-term rates low; they can raise their medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody knows how far these methods will work but it is better to try something than to make excuses while workers suffer. It is better to admit that there is no recovery now and do something to change the situation.

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