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Entries in Federal Reserve (106)

Thursday
Nov042010

What Will Fed's $600 Billion Mean for Consumers?

Photo Courtesy - Getty Images(WASHINGTON) -- Wednesday's announcement that the Federal Reserve will purchase $600 billion worth of Treasury securities may have been expected by Wall Street, but what does that mean for your pocketbook?

The most direct effect will be on interest rates and consumers' investments.  This is the Fed's main tool for changing monetary policy.  The Fed is going to print more money, thereby making money cheaper to borrow and interest rates lower.

"One could argue that interest rates are too low already and treasury prices are too high," said James O'Sullivan, chief economist with MF Global. "Even if bond yields went up a percentage point in the coming year, the price of a bond would go down less than 10 percent."

Lower interest rates also could lead to lower mortgage rates for consumers looking to buy a home.  Consumers who couldn't afford to borrow money or didn't want to borrow money now have greater incentives to do so at lower rates.  With more people buying homes, the prices of homes could increase and lead to a boost to the housing market.

For consumers with investments in the financial markets, a large purchase like the Fed's, which will take place at a pace of about $110 billion per month until June 2011, theoretically should encourage investors to place their money in places with higher risk and returns, like the stock market, instead of low-yielding bonds, for example.

As those assets increase in value over time, that means a better stock market and potential gains in wealth for people who own stock for retirement or general purposes.

Copyright 2010 ABC News Radio

Wednesday
Nov032010

Fed Announces a $600 Billion Monetary Stimulus

Photo Courtesy - Alex Wong/Getty Images(WASHINGTON) -- The Federal Reserve, meeting a widely held expectation, announced a $600 billion in new monetary stimulus program dubbed QE2 by Wall Street and Washington. The announcement comes at the end of the 16th meeting in a row where the Fed's Open Market Committee decided to keep a key federal interest rate target unchanged at 0 - .25%.

The Fed governors believe the additional money, introduced into the economy through a program which will buy up Treasury bonds during the next 8 months, is intended to lower borrowing costs for American consumers and businesses. It will also likely have the effect of lowering interest payments for people and businesses which have lots of money in savings.

During the past two months as the economy continued to stumble along with high unemployment and slowing growth, chairman Ben Bernanke and other members of the Fed were talking about what more they could do to get things moving, since their key interest rate is effectively at zero.

They turned to a tool they used during the height of the crisis: quantitative easing or QE. It's an electronic equivalent of printing more money, and it is not without its critics. From late 2008 to early 2010, the Fed used a QE program to buy up $1.7 trillion in government debt and mortgage-backed securities in an attempt to keep the global economy from slipping into a depression. It is unclear that a second round of QE will be successful, as some economists believe consumers and businesses are not in a borrowing and buying mood no matter how cheap rates are.

Copyright 2010 ABC News Radio

Wednesday
Nov032010

After the Midterms: Cautious Optimism as Wall Street Awaits Federal Reserve Meeting

Photo Courtesy - Getty Images(WASHINGTON) -- Investors seemed to take a wait-and-see attitude Wednesday in response to Tuesday's election results, as they await the possible announcement of the Federal Reserve's purchase of treasuries in yet another attempt to boost the economy.

After rising slightly most of the morning, the Dow Jones Industrial Average fell 25 points at mid-day, while the bond markets edged up. Stocks have moved up more than 10 percent since the end of August on anticipation of a Republican victory and more action from the government to spur investment and job creation.

Guy LeBas, chief fixed income strategist with Janney Capital Markets, told ABC News that Republican control of the house holds short-term significance for the markets.

"The election represented a significant shift towards a more conservative policy stance," said LeBas. "The implications are for reduced government spending and lower tax rates in the coming years."

However, LeBas said other external factors, such as unemployment and import-export ratios influenced by the falling U.S. dollar, have longer-term implications for investors.

 "What the market seems to like is legislative gridlock, and there's growing impetus that's going to happen," said LeBas.

Copyright 2010 ABC News Radio

Tuesday
Nov022010

Federal Reserve Meeting Could Be Most Important Vote This Week

Photo Courtesy - Alex Wong/Getty Images(WASHINGTON) -- While Americans head to their polling places on Tuesday, the Federal Reserve's Open Market Committee will convene a two-day meeting to cast, what can arguably be, the most important votes of the week.

How can this be? The economy is not getting better. It's growing, but not at a pace where the mass of long-term unemployed and underemployed -- more than 26 million Americans -- will see strong hiring in the near future.  With a Democrat in the White House and the Republicans likely to control one, if not two, houses of Congress, gridlock is a certainty.  This means another round of fiscal stimulus is unlikely, if not politically impossible.

Federal Reserve Board Chairman Ben Bernanke and company might be one of the only parts of the federal government not bogged down in a political standstill after Tuesday's election.  To try to spark spending and hiring, they are planning an ambitious effort to spur the moribund economic recovery with an unprecedented effort called QE2: "Quantitative Easing -- 2nd Round."

Copyright 2010 ABC News Radio

Sunday
Oct312010

The Most Important Vote This Week: The Fed Meeting

Photo Courtesy - Getty Images(WASHINGTON) -- When Americans head to the polls on Tuesday, the Federal Reserve’s Open Market Committee will convene a two-day meeting in its historic Board Room. It is, arguably, in that room where the most important votes of the week will be cast – perhaps more impactful on the future of the Republic than the millions of individual ballots being cast around the country.

The economy is growing, but not at a pace where the mass of long-term unemployed and underemployed will see strong hiring in the near future. With a Democrat in the White House and the Republicans inevitably controlling one, if not two houses of Congress, gridlock is a certainty. It means another round of fiscal stimulus is unlikely, if not politically impossible.

The apolitical Federal Reserve might be one of the only parts of the Federal Government not bogged down in a political standstill after Tuesday’s election. To try to spark spending and hiring, they are planning an ambitious effort to spur economic recovery with an unprecedented effort called QE2 – “Quantitative Easing – 2nd Round.” QE techniques include buying up government bonds, mortgaged-backed securities, even commercial bonds issued by private companies and consumer lenders. It has the same effect of printing money without having to actually heat-up the presses.

The market believes the Fed will announce a program to buy up Treasury bonds a few $100 billion at a time over the next year. The buying program would likely be dependent on the Fed’s read of current economic conditions. If employment begins to ramp up, the Fed would likely not commit the full amount. If things deteriorate, the Fed could speed up the purchases.

Specific plans should be announced Wednesday.

Copyright 2010 ABC News Radio

Friday
Oct152010

Bernanke: Federal Reserve Prepared to Take Further Action

Photo Courtesy - Federal Reserve System(BOSTON) -- The Federal Reserve seems prepared to do more to support the nation’s economy, which continues to grow at a sluggish pace.

“There would appear, all else being equal, to be a case for further action,” said Federal Reserve Chairman Ben Bernanke, speaking Friday in Boston.

“The means of providing additional monetary stimulus, if warranted, would be to expand the Federal Reserve’s holdings of longer term securities.”

Bernanke said he has two main concerns: joblessness and inflation.

“Overall economic growth has been proceeding at a pace that is less vigorous than we would like,” he said.

“With an actual unemployment rate of nearly 10 percent, unemployment is clearly too high, relative to estimates of the sustainable rate.”

Inflation, he told the conference, is too low.

“The short term real interest rate is too high given the state of the economy, and the risk of deflation is higher than desirable.”

Bernanke offered no timetable for any new steps.

Copyright 2010 ABC News Radio

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