Central Banks: Fighting Their Own Battles

The Federal Reserve should utilize a balanced approach to monetary policy. The current state of the economy—undershot employment and inflation goals—presents no conflict in achieving a neutral state. In fact any action that supports employment growth also moves inflation up toward our target (Evan

Federal Reserve Chairman Ben Bernanke 's meeting dealt mainly with the issues that could stabilize the economy after the great recession. After creating a number of policies to fight the 2008 crisis, Chairman 's move to further reduce Quantitative Easing was a bit of a disappointment. The Fed will reduce its purchases of long-term Treasuries and mortgage-backed securities by another $10 billion a month. Apart from this, Fed is going to concentrate on maximizing employment rates, stabilizing prices and interest rates.

Eric Rosengren, President of the Federal Reserve Bank of Boston, and John Williams, President of the Federal Reserve Bank of San Francisco, have both been known as “doves” in their individual monetary policy opinions and votes over the last five years. Since the summer of 2015, there has been a notable change in Rosengren’s rhetoric in the pursuit of normalization to the point where Rosengren is now actively suggesting an increase in interest rates in the very near future in order to promote growth in the economy, and as of the FOMC meeting on September 21st, 2016, was one of three dissenting votes (out of ten) for keeping rates low. Rosengren supports his new change of face with factors that will be discussed at length in this paper such as the pace of growth, the up-sides to higher rates, and the danger lurking in a prolonged low-rate economy. In similar (but not identical) fashion, John Williams is turning to the belief that rate hikes will be necessary sooner, rather than later if the Fed wishes to continue to spur growth in the United States economy, as opposed to letting the economy overheat into recession. Williams supports this point with evidence similar to Rosengren involving the pace of growth, the upside to higher rates, and the danger lurking in a prolonged low-rate economy. Eric Rosengren’s recent flip provides an interesting vantage point on both camps in the Federal Reserve. By comparing and contrasting the rhetoric of Rosengren (a former dove) and Williams

Bernanke’s comment that the Fed would maintain “highly accommodative monetary policy for the foreseeable future” sparked the mood swing on Wall Street. As noted on above, this is appropriate, but what the market may be missing is what “highly accommodative” policy actually means, at least to the Federal Reserve. It is not unreasonable to think that holding interest rates near zero for the next couple of years is “accommodative”. It most certainly is. Maintaining bond purchases is also obviously accommodative policy, but there could be a subtlety in Bernanke’s likely approach. If in coming months interest rates are held at zero (which is as certain as anyone can be on any policy setting), yet the Fed starts to scale back its $85 billion bond purchases a month to $75 billion, then $50 billion and so on, there is still no question that policy is still accommodative, but a little less than it was before.

The Federal Reserve is the main banking system in the United States. It has 12 regional banks around the nation, its headquarters being located in Washington DC. The Federal Reserve (better known as the Fed) was established in 1913 by Congress in order to “provide the nation with a safer, more flexible, and more stable monetary and financial system” (federalreserve.gov). Although the Fed was created over a century ago, it is still a major influence in the banking systems today.

The Federal Reserve, also known as the Fed is the central bank of the United States. The system was created on December 1913 during the reign of President Woodrow Wilson. It was during this time that President Woodrow signed the Federal Reserve Act, incorporating it into the law. The Congress was behind the creation of the Federal Reserve with the ultimate goal of making it safer and more reliable to keep the money. The Congress was also compelled to establishing a more flexible financial system during this time. Its management is based on the federal system, that is, the Board of Governors (central government agency). The central government agency trusted with the management of the Federal

Many observers believed that the 27-28 October Federal Open Market Committee (FOMC) meeting would be a non-event, largely due to the fact that there was no scheduled press conference after its conclusion. In fact, the press statement revealed some interesting insights into the current line of thinking of FOMC members. Most importantly, it is abundantly clear that the vast majority are still inclined to raise the federal funds target at the 15-16 December policy meeting. I have recently written about rising dissent on the Board of Governors, notably the views of Governor Lael Brainard. It appears that her openly questioning the policy apparatus of Fed Chair Yellen has yet to sway the opinions of other

In this article Federal Reserve Chairwoman Janet Yellen stated that there is “no fixed timetable” for raising the U.S. interest rates. She also confirmed that rate increases will happen since strong labor market gain continue, which will push inflation above the current central back target. The current labor market has continued a growth trend and employers are adding new jobs each month. Additionally the unemployment rate has been held relatively steady. The chairman also warned that if job gains continue and unemployment drops further the inflation rate could rise, which will subsequently raise interest rates at a faster rate than planned.

The FED decided to carry out its bond purchasing program in August to help prevent deflation (Hauser, 2011). The article could have turned out much differently if the FED did not step up and take action. In addition the FED has the authority to adjust interest rates in accordance with the current economic condition. Currently the FED is willing to curb inflation by adjusting the interest rates at a moment’s notice (Hauser, 2011). The FED’s invisible hand can sometimes help prevent major economic disasters.

he Federal Reserve or the Fed is the central banking system of the United States of America. It was formed in 1913 by the U.S. Congress following the formation of the Federal Reserve Act which was created after a series of financial panics e.g. the severe panic in 1907. Before that, the U.S did not have any organization whose sole purpose was to study and implement monetary policy. It made markets unstable and the public had little faith in the banking system (Binder, 2013). The Fed as an independent entity is subject to oversight by Congress. It is headed by the Board of Governors of the Federal Reserve which is a government agency in Washington. The Board of Governors consists of seven staff who is presidential appointees and each of them serves 14-year terms.

The opinions of FOMC members about the economy were generally optimistic about the future of the U.S economy. However, they were reluctant to increase the federal interest rates, citing that the economy is not exactly a sunny picture, except for the labour market (Ashworth, 2015). For instance, although they predicted moderate growth in the overall economy, the growth in household spending is not growing. This could lead to decreased economic growth and increased inflation

     It seems that not only the analysts are in disagreement of how the fed should

Monetary policies are ways that the Federal Reserve relies on to reach full employment, often targeting an inflation rate or interest rate to ensure price stability and it should be free from political influence. Through forward guidance the Federal Open Market committee (FOMC) provides to households, businesses, and investors about where the monetary policy stands and is expected to prevail in the future, given the current economic outlook. They try to fix the economy by regulating inflation because it will lead to a decline on the purchasing power. Monetary policies are to achieve low employment, stable prices and low interest rates. By enforcing effective monetary policy, the Fed tries to maintain stable prices and so to support conditions

Had the Fed kept to one school of thought instead of vacillating between predictions of doom and gloom and then back again to all is well our nation might have bounced back more quickly from the burst bubble and the recession (Lowrey, 2014). It is this vacillation and “wait and see” attitude that clouds many economists’ thinking. Most of the time making small adjustments to the market and waiting it out is okay, but when things start to fall apart some vision is needed to spur the Fed into action and prevent another crisis. According to Mark Thoma at The Fiscal Times:

On September 18, 2013 the Federal Reserve reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In addition, the committee agreed to continue its monthly $85 billion purchase of Treasury and mortgage-backed securities as long as the unemployment rate remains above 6.5 percent. Inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal and longer-term inflation expectations continue to be well anchored .