Legitimate Possibility of Additional Federal Reserve Intervention Posted by James Randolph on September 12, 2011
Legitimate Possibility of Additional Federal Reserve Intervention
September 12, 2011 – On Thursday, Ben Bernanke made it clear in a speech in Minneapolis that the Fed will aid in the rebuilding of the economy particularly in reviving high growth rates and the job market. During the third week in September there will be an extended monetary policy in which Bernanke will probably acknowledge more Fed action.
Despite this, the chairman of the Federal Reserve sidestepped any talk in detail about decisions concerning what he will promote. He also recognized the complications that policymakers are dealing with. Mr. Bernanke refrained from discussing anything related to policy before the Fed’s following meeting.
His observations have not helped those in search of sweeping actions in dealing with a weakening economy, for example a current load of quantitative easing or approval of higher inflation in the short term.
Mr. Bernanke is quite optimistic about the overall prospect of growth within the economy. He “expects a moderate recovery to continue and indeed to strengthen over time.” Is the rate- setting Federal Open Market Committee alone in their opinion? Despite Bernanke’s optimism, he also stated that the Fed has cut its growth forecasts adding that inflation should drop back to a rate at or below the Fed’s 2 percent objective.
Both speeches (Jackson Hole and Minneapolis) were very similar except, in one instance, while talking about “employing tools as appropriate to promote a stronger economic recovery,” he also added that they will undoubtedly do everything within their power to help the economy.
The Federal Reserve’s meeting in August maintained that interest rates will be kept unusually low until mid-2013, despite a few officials who wanted to do more in August whereas some others had conflicting views.
Tough resistance from the rate-setting Federal Open Market Committee about a desperate alternative is what will be dealt with if a balance sheet rejig is performed. A balance sheet rejig would shift its investments into longer-term bonds to attempt to force long-term interest rates even lower.
Mr. Bernanke stated, “Economic policymakers face a range of difficult decisions, and every household and business must cope with the stresses and uncertainties that our current situation presents. These are not easy tasks.”
He reaffirmed his long-term confidence about the economic health of the US, claiming that he does not anticipate its growth potential to be debilitated by the recession as long as policymakers, fiscal as well as monetary, take the essential steps.
Throughout the next couple of years, the Federal Reserve has reduced their estimate of the economy’s potential growth.
Senior Staff Writer – Certified Gold Exchange