Sunday, September 19, 2010
Fed Is Expected to Discuss More Ways to Revive Economy
The Federal Reserve Bank will be holding a meeting this Tuesday in an attempt to find a new way to stimulate the economy. This will be the FOMC's last scheduled meeting before the last elections. The topic of discussion is whether or not they will hold off on trying to jump start the economy by resuming large scale purchases of Treasury securities to push our low interest rates even lower than what they are now. Banks have already voted on using the money the Fed gets from their huge portfolio and try to buy back long term treasury debt; this would put a downward pressure on long term interset rates- while short term interset rates have already been nearly zero. This article is a good one to read because it makes us realize how close we are to deflation, something that Japan has been struggling with since the 90's.
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This article is very interesting in regards to the problems that the Fed encounters and the manner in which they have to deal with them. An immediate response can be seen in companies and consumers after every remark made or action taken by the fed because they have control over our money supply. The fed essentially provides certainty over taxes and regulations. The president of the Federal Reserve Bank of Dallas made a very interesting statement in regard to this concept, "uncertainty over taxes and regulation had caused companies to sit on cash and banks to hold reserves at the Fed rather than make loans". This shows the strength that the Fed holds on the entire American economy.
ReplyDeleteWhile the Fed holds control over the interest rates, the problem has been more political than economical. The debate over the bush tax cuts (with both political parties forming different opinions) has put more pressure on the fed. Bernanke's greatest fear is deflation, but he is forced with the decision of whether or not to lower long-term interest rates in hopes of increased investment. Meanwhile, companies hold on to their cash as they wait to see the political battle pan out..
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