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In no more than a 100 words reply to the passage below: Overall, the economy is performing well. The goal is to make progress bringing
In no more than a 100 words reply to the passage below:
Overall, the economy is performing well. The goal is to make progress bringing inflation down to 2% over time. While tight monetary policy can help curb inflation and maintain economic stability over the long term, it can also bring risks by diminishing economic activity and increasing financial pressures on borrowers.
- Risks of housing market -- The housing sector is sensitive to interest rates. Activity over the past year was subdued due to high interest rates and high mortgage rates. Tight monetary policy can reduce activity in the housing market by raising borrowing costs and interest rates, reducing affordability, and slowing down home sales (i.e. lowering home prices to attract buyers). In addition, decreased consumer spending and reduced borrowing and investments can cause a slowdown in GDP growth which leads to risk of a housing market slowdown.
- Benefit of housing market -- Higher interest rates can help mitigate price increases by making housing more accessible for prospective buyers in the long term. Another benefit is that potential buyers may hold off on purchasing and see an opportunity to save for a larger down payment or explore other investment options. A personal advantage is having the ability to increase rent price on my investment property.
- Benefit of labor market - From the FOMC Press Conference, we learned the current economy is strong, inflation has come down, causing the labor market to follow suit, and become stronger. The GDP expanded during 2023 by 3.1% due to strong consumer demand and improving supply conditions. Supply is feeding demand because workers are getting paid and spending more, which boosts the economy. Strong job growth is not a reason to be concerned about inflation. Things are returning to the 2019 state of the labor market (recovering from the pandemic after extreme imbalances) - strong labor market, strong wage growth, high job growth, and big increases in supply.
- Risks of labor market -The labor market is tight. High inflation causes increased troubles for households, especially if primary financial support is unemployed. A low hiring rate and layoffs could weaken the labor market causing reduced job creation.
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