Federal Reserve System Essay

1528 Words Sep 1st, 2013 7 Pages
money and banking | Federal Reserve System | FIN 402 Module 2 Case | | Derrick Smith | 7/23/2013 |


Ben Bernanke was a key player in U.S. economic policy well before the Great Recession, and during that time seems to have achieved almost mythical status. The prolonged economic crisis has kept him front and center in the news, with regular appearances on Capitol Hill and increasingly heated rhetoric from detractors. As Federal Reserve chairman, Bernanke maintains as he attempts to steer the nation onto a steadier economic course. Federal Reserve Chairman Ben Bernanke is, by all accounts, a man of formidable intelligence. He scored 1590 on his SATs, taught himself calculus in high school, and graduated
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During the Great Depression, it should be remembered, the unemployment rate in the US peaked at around 22%, and it averaged a staggering 16% in the 1930s. In the lesser depression that the US economy is emerging from now, thanks to the radical and fearless monetary policy settings delivered by Bernanke, the unemployment rate peaked at 10% and since the market and economy crash started in 2008, the unemployment rate had averaged around 8%. On these facts alone, Bernanke should deserve unquestioned praise.
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.
This may be well understood in the bond market, where
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