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Showing posts with the label Federal Reserve

Should Reversing QE Come Before Raising Interest Rates?

As the economy improves changes in Fed policy is likely but what action the Reserve will take is open to debate. The question was proposed by Tim Worstall in an article entitled, Should The Fed Raise Interest Rates Or Reverse QE First ? It is an important one as policy makers decide what they are going to do with this long-term debt while still trying to support America's re-emergence. It should be remembered that the purpose of QE was to stabilize the banking system that found itself without capital reserve not too long ago. As a crisis aversion tool the goal was to increase government debt through the buying of securities thereby putting more electronic cash, hence reserves, into the banks to avoid major defaults that could have dragged the economy down.  It became a crisis averted by transferring risks from the private sector to the government. As a policy stabilization made sense during a bank crisis but makes less sense as the economy recovers. The need to keep the liquid

Feds Announce the End to the Era of Quantitative Easing

The Federal Reserve announced a discontinuing of the controversial bond buying program at the end of October this year. They will keep the short-term rates around 0 for the near future.   To this point, the risk to inflation is relatively low and the economy has shown mixed signals of strength in the last year or so. The Federal Reserve seeks to support the   3% projected national growth rate while not undercutting gains in the employment market.  Lower Unemployment and Skepticism :  Unemployment dropped to 5.9% but wages have not risen to provide an income boost. Most Americans are still skeptical of the economy and feel that improvements will occur sometime next year. They are not sure when next year but “sometime” seems to be the target spot. It is skepticism that is a result of not seeing high paying jobs and wage increases. Bond Purchases :  The bond purchases were controversial from the beginning but were seen as one avenue of encouraging development out of t

When Opportunities Dry Up-Income Inequality in America

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Income inequality is a hot topic that is becoming more troublesome every year as the gap in incomes continues to grow. Fed Chair Janet Yellen discussed on October 17th the growing problem of income inequality and its potential impact on the American Dream. She elaborated on how child resources, higher education, entrepreneurship, and inheritance influence a family’s ability to raise their position in life. Without ensuring that there is sufficient mobility within society there are risks to the founding fabric of opportunity within the country. Those who are not wealthy are finding it difficult to save money or pass that money onto future generations. At the same time, those at the top of society are discovering that it is not only easier to earn more money but also save that money for their children. Additional time without change seems to aggravate the problem. Janet Yellen discusses four possible solutions that include early education intervention, affordable higher ed