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Federal Reserve considers next step
A chorus of U.S. Federal Reserve officials in various statements have said the central bank is willing to act to jump-start a sluggish recovery.
In testimony on Capitol Hill last week, Chairman Ben Bernanke said the bank was willing to take further action as he voiced his displeasure with the high level of unemployment and flagging manufacturing.
Cleveland Fed President Sandra Pianalto said recently she would vote yes on taking further action if the economy remained weak. Atlanta Fed President Dennis Lockhart said he would agree to the Fed making a move if there was no “step up of output and employment growth.”
“I know people feel like we haven’t made enough progress,” said St. Louis Fed President James Bullard, who is considered an inflation hawk.
Bullard’s concerns centered on the Fed possibly sparking inflation by providing too much stimulus.
Bernanke has outlined possible Fed actions, which could include buying mortgage-backed securities or treasury notes or using a discount window to offer cheap money to banks.
The bank could also shave its already low federal fund rate from its current position of 0.25 percent to somewhere closer to zero.
Or it could offer a new round of quantitative easing, a controversial step that involves using new money to buy long-term securities.
Printing money, as it is sometimes called, can undercut the value of the U.S. dollar, which makes it unpopular with trading partners, as it makes U.S. goods cheaper and foreign goods relatively more expensive.
This deep into a sluggish recovery from a prolonged recession, expectations may be low. Bernanke, however, has said he is trying to achieve “escape velocity,” the point when the recovery builds self-sustaining momentum of its own.
Copyright 2012 by United Press International