Federal Government’s Strategy TO BOOST SLOW ECONOMIC RECOVERY :
Federal Government’s Strategy TO BOOST SLOW ECONOMIC RECOVERY “ Quantitative Easing is the Federal Reserve’s effort to spur the recovery (Clifford, 2010).” This effort is executed by purchasing $600 Billion in Treasury Bonds Projected outcomes from this effort will be lower the federal funds rate, “…making it cheaper to borrow money (Clifford, 2010).” This is the second time since 2008 that this effort will be implemented
Lower interest rates may be Not the Answer:
Lower interest rates may be Not the Answer The Federal Reserve, commonly known as The Fed has all ready lowered interest’s rates so low that discussion of further decreases will likely have little impact as rates cannot go below zero as Ben Bernanke, Fed chairman him self points out in a speech entitled Monetary Policy Objectives & Tools In A Low Inflation Environment ( TheBasisPoint , 2010). Lowering interest rates even lower may not make a huge impact as people just cannot afford to borrow. Lower interest rates will do nothing to impact their ability to borrow (The Associated Press, 2010).
Lower rates could negatively impact u.s. citizens:
Lower rates could negatively impact u.s . citizens Lower interest rates negatively impact retirees as they can no longer live off their savings. The amount of interest gained from a CD or other kind of savings tool with interest will not cover most retiree’s cost of living (Tyler, 2010). The dollar has also suffered from inflation due to lower interest rates. This means that the dollar buys less which can be a negative for the American consumer. This also affects travel as when traveling to a foreign country, the U.S. dollar exchanges for less foreign currency (Tyler, 2010). Lower interest rates could push the value of the dollar even lower which ultimately could lead to both national and international panic. If overseas investors begin dumping their U.S. dollar assets, it could spike inflation (The Associated Press, 2010).
The long term effect and truth:
The long term effect and truth As a result of the Fed’s multi-trillion dollars bond holding there is the potential for soaring prices, interest rate hikes as well as the obvious conflict of interest the Fed will have in setting interest rates ( Malpass , 2011) . The Fed’s huge bond holding will take decades to mature. But overhanging the Fed’s plan is the risk that it would trigger runaway inflation months or years from now ( Malpass , 2011) . Bernanke him self calls this a gamble. But he also indicates he feels that short-term needs take priority (The Associated Press, 2010).
References:
References The Associated Press, . (2010, October 17). Fed proposes buying treasury bonds to help fight high jobless rate . Retrieved from http://www.joplinglobe.com/dailybusiness/x847470137/Fed-proposes-buying-Treasury-bonds-to-help-fight-high-jobless-rate TheBasisPoint , (2010, October 15). Bernanke explains pros and cons of quantitative easing (aka mortgage & treasury bond buying) . Retrieved from http://www.thebasispoint.com/2010/10/15/bernanke-explains-pros-and-cons-of-quantitative-easing-aka-mortgage-treasury-bond-buying/ Clifford, C. (2010, November 12). Treasury yields push higher . Retrieved from http://money.cnn.com/2010/11/12/markets/bondcenter/treasuries/index.htm Malpass , D. (2011, January 7). Fed should stop buying bonds; it is falling far behind the economy . Retrieved from http://www.growpac.com/2011/01/fed-should-stop-buying-bonds-it-is-falling-far-behind-the-economy/ Tyler, J. (2010, November 12). Pros and cons of quantitative easing . Retrieved from http://marketplace.publicradio.org/display/web/2010/11/12/am-pros-and-cons-of-quantitative-easing/