World waits for white smoke from U.S. Fed
http://finance.yahoo.com/news/world-waits-white-smoke-u-093139344.html
The article talks about The Fed raising the interest rate in the United States. It says The Fed may give us a clearer picture on when it will do so in the next week. When the U.S, economy took a hit The Fed lowered the cost of borrowing money to help increase growth and inflation. Now that we have created growth and inflation The Fed wants to return interest rates back to their normal previous levels, but they are having trouble deciding when to. They want to return the interest rates to previous levels but at the same time they don't want to halt growth all together. This has to do with the fact that our economy also impacts so many other countries/regions economies. The European Central Bank is not in the same boat as the U.S. they have been lowering their interest rates, just as we did, in an attempt to rekindle growth and inflation in Europe. Another large economy that has been affected by our crisis was China. The article states that "China annual growth has roughly halved since the financial crisis hit demand for its goods." China's central bank has also been pumping money into the economy to keep it afloat, but they have not lowered interest rates. This has really raised the cost of living in bigger cities such as Beijing, where a cup of coffee from Starbucks could cost as much as $6. The reason given for not wanting to lower interest rates is that the government does not want to "dilute the power of big state-owned enterprises such as China Telecom to make space for smaller start-ups." The big thing here is that The Fed will have a hard time raising interest rates here without affecting many other countries as well. I think they need to ask themselves do they want to just look after the well being of our economy or do they want to look after the well being of the economy of the entire globe. Since our economy is largely dependent on trading with many other countries I think they should wait a little bit to see if economies of some our biggest importers and exporters picks up.
Phil, the Federal Reserve is one of the most powerful economic institutions in the world today. The mere mention of in increase in interest rates will lead to a domino effect on many other countries and economic areas. A sharp increase in interest rates would throw the economies out-of-whack but given how low the current rates are higher interest rates won't hurt the economies of the world drastically.
ReplyDeleteI agree with Joshua that the Fed saying too much can negatively affect the economy. People base future purchasing and investing off of expectations, and they base expectations off of things that the Fed says. The fact that other nations also base their expectations off of the Fed is a scary thought, and I'm sure the Fed is wary to say too much.
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