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How the Federal Reserve reconciles low unemployment and stagnant wages
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The Fed has two primary, sometimes conflicting, responsibilities: ensure stable prices and maximize employment. To achieve those two mandates, the Fed has three primary tools at its disposal: the reserve requirement, the discount rate and open market operations. - photo by Randy Shumway
When the Federal Reserve was established in 1913, over 30,000 different currencies were in some type of use throughout the United States. The lack of a uniform currency contributed to systemic weaknesses in the monetary system, including bank runs, unstable interest rates and prices, and an overall lack of confidence in banking institutions. Thanks to its capacity to mitigate each of the aforementioned issues, along with many others, the Federal Reserve has played a key role in stabilizing the United States economy.

The Federal Reserve, also known as the Fed, is the central bank of the United States. The Fed has two primary, sometimes conflicting, responsibilities: ensure stable prices and maximize employment. To achieve those two mandates, the Fed has three primary tools at its disposal: the reserve requirement, the discount rate and open market operations. Each of these tools gives the Fed the ability to adjust the supply of money and interest rates, thereby helping manage inflation and impacting employment.

The reserve requirement is the amount of money that a bank is required to hold as a percentage of checking and savings deposits. The reserve requirement stabilizes the financial system by ensuring against bank runs. But the Fed has the authority to lower the reserve requirement. When they do this, banks can lend more, which makes it cheaper to borrow money. In other words, interest rates decline.

The discount rate is the interest rate the Fed charges banks to borrow money to ensure they have sufficient resources to meet the reserve requirement at the end of each day. When the Fed increases the discount rate, it is more expensive for banks to borrow money. Banks are subsequently more cautious about giving credit, causing interest rates to rise.

The most common tool the Fed uses is open market operations, which refers to the buying and selling of government securities by the Fed. When the Fed buys securities from a bank, that bank receives more money to lend, which in turn decreases interest rates.

The Feds target rate of inflation is 2 percent, connoting what they have determined to be the optimal flow of money. If average prices grow more quickly than 2 percent, the Fed can reduce the amount of money in circulation to cool inflation. But if economic growth is slow and inflation is low as they have been for the past several years the Fed increases the money supply to encourage spending.

Historically, low interest rates have induced businesses to expand, increasing employment and investment, while simultaneously encouraging consumers to spend more. When these factors have occurred, both prices and wages have typically increased (thus why stabilizing prices and maximizing employment can come in conflict). Six years ago, the Fed cut interest rates to help bolster the economy and employment. The result has been that employment has improved and the economy has slowly grown. What could have been a devastating depression was avoided.

However, two things have not occurred as expected: Average prices havent increased as forecasted, and wages have stagnated. Technological improvements and globalization appear to be two of the reasons why prices and wages have not increased as expected.

Advances in technology have led to increased overall economic production without increased prices, due to the simple dictum that innovation makes productivity cheaper. While gains in productivity are great for consumers, they also come at a cost: Businesses can continue to invest and expand without the need to hire as many employees and without upward pressure to increase wages. Globalization compounds this effect by allowing firms to acquire less expensive resources abroad.

When businesses have more options for both labor and raw materials, prices and wages remain low. Unemployment has fallen to 5.5 percent nationally close to what economists might call a natural rate of unemployment but wages have not risen concomitantly.

The Federal Reserve plays a key role in stabilizing the United States economy the adjustment of just a few percentage points has a huge effect but there are limitations to what the Fed can accomplish, as evidenced in the last few years. Neither wages nor inflation has grown as expected, and the Fed has little more in its arsenal to affect either. Therefore, with a growing economy and shrinking unemployment, the best long-term solution for improving wages transfers from the Federal Reserve to another critically important institution our education system. But that is a different story, for another day.
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Record April boosts Savannah's container trade at port
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The Port of Savannah moved 356,700 20-foot equivalent container units in April, an increase of 7.1 percent. - photo by Provided

The Georgia Ports Authority's busiest April ever pushed its fiscal year-to-date totals to more than 3.4 million 20-foot equivalent container units (TEUs), an increase of 8.8 percent, or 280,000 TEUs, compared to the first 10 months of fiscal 2017.

"We're on track to move more than 300,000 TEUs in every month of the fiscal year, which will be a first for the authority," said GPA Executive Director Griff Lynch. "We're also anticipating this to be the first fiscal year for the Port of Savannah to handle more than 4 million TEUs."

April volumes reached 356,700 20-foot equivalent container units, up 7.1 percent or 23,700 units. As the fastest growing containerport in the nation, the Port of Savannah has achieved a compound annual growth rate of more than 5 percent a year over the past decade.

"As reported in the recent economic impact study by UGA's Terry College of Business, trade through Georgia's deepwater ports translates into jobs, higher incomes and greater productivity," said GPA Board Chairman Jimmy Allgood. "In every region of Georgia, employers rely on the ports of Savannah and Brunswick to help them become more competitive on the global stage."

To strengthen the Port of Savannah's ability to support the state's future economic growth, the GPA Board approved $66 million in terminal upgrades, including $24 million for the purchase of 10 additional rubber-tired gantry cranes.  

"The authority is committed to building additional capacity ahead of demand to ensure the Port of Savannah remains a trusted link in the supply chain serving Georgia and the Southeast," Lynch said.

The crane purchase will bring the fleet at Garden City Terminal to 156 RTGs. The new cranes will support three new container rows, which the board approved in March. The additional container rows will increase annual capacity at the Port of Savannah by 150,000 TEUs.

The RTGs will work over stacks that are five containers high and six deep, with a truck lane running alongside the stacks. Capable of running on electricity, the cranes will have a lift capacity of 50 metric tons.

The cranes will arrive in two batches of five in the first and second quarters of calendar year 2019.

 Also at Monday's meeting, the GPA Board elected its officers, with Jimmy Allgood as chairman, Will McKnight taking the position of vice chairman and Joel Wooten elected as the next secretary/treasurer.

For more information, visit gaports.com, or contact GPA Senior Director of Corporate Communications Robert Morris at (912) 964-3855 or rmorris@gaports.com.

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