Entering the New Year, the Federal Reserve shows fews signs of any significant changes to their plans. The federal funds rate is still near zero and there have been no signs that the fed is reevaluating the second round of quantitative easing, despite promises to do so. The fed's bond buying policy creates a great fear of rising inflation. The goal of the bond buying policy is to create jobs and stimulate the economy by putting more money into it. High prices are the risk that many fear will come when the economy absorbs more money. Inflation pressures are low at the moment and the fed does not see any danger in their pursuit of monetary stimulus.
2 comments:
Ben Bernanke, Federal Reserve Chairman is pushing really hard for economic stimulus, due to the current sluggish growth of the economy. His actions have received a fair share of criticism from foreign governments such as Germany and China, who feel that it is risky for the international market to artificially accelerate US growth at this point in time.
The economy is still in recovery. While the employment rate and consumer confidence are rising, and state tax revenues are increasing, it is still going to take some time before we see full recovery of the economy given the depth of the recession. Hence, I would not expect significant inflation in the near future. Cutting back on the money supply or increasing the discount rate will be a suicide since the economy is still pretty weak.
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