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11/14/2013

Comments

Jean Turlington

This article helps explain a lot about how the FED is working to achieve its dual mandate of keeping unemployment low as well as stable prices with not too much inflation or deflation. The FED's job is particularly interesting right now because its normal method of working to change the interest rate in the economy and federal funds rate is feasible. It is not because the interest rate is already basically zero and the types of policies that would help the economy and increase jobs would be lower interest rates, but this cannot happen because there cannot really be negative interest rates because no one will lend if that is the case. Instead this quantitative easing is used. I think it is a very interesting way to get around the fact that the FED cannot lower the interest rates any further. It is not quite as effective overall, but it still works to address the dual mandate given to the FED. This makes sense to increase reserves and therefore increase stock values as well as effecting the exchange rate, increasing the amount of exports and therefore the amount of jobs in the export field. My one question is that it increases expected inflation and therefore causes more consumer spending. In our reading it discusses how increase in expected inflation cause inflation to rise as well. I think this might be a concern of the FED at some point because one of its tasks is to manage inflation and the price level. I am not exactly sure how it works, but it is definitely something to think about.

Kelsey Richardson

Lowering interest rates is one of the traditional ways that the FED approaches stimulation of the economy as they work to uphold their dual mandate to keep prices stable and unemployment low. However, what do we do when the interest rate is at the lower bound? This article explains stimulating an economy whose interest rates are as low as they can go by increasing the quantity of reserves. This process, called quantitative easing, spurs American spending when the increased reserves lead to purchases of financial assets, increases in price and raises in stock price. Quantitative easing also generates an expectation of future inflation and therefore an increase in spending in the present. This method seems like a good idea for our economy at the current time, but the article also says that it does not make the strides that normal price easing makes when it is possible to lower interest rates in the traditional manner. So although quantitative easing could be beneficial for lowering unemployment, we may need additional measures as well. Also, Jean makes a great point. Quantitative easing may make some progress in the short run, but what will the injection of liquidity do to future inflation and debt in the long run? These are things to consider.

Mitchell Brister

This article was very interesting for me. We have talked a lot about the traditional mathod of raising and lower interest rates by the Fed to control inflation. The only question I have from the article is that I don't see how this method of quantitative easing can be that effective. The banks already have all the money in the world just sitting in their reserves.They already have the money they need to purchase assets. The inflation expectations and downward pressure on exchange rates seem like good results of quantitative easing but if these are the main effects, I doesn't seem very effective to me.

Maddie Kosar

Building upon Jean and Kelsey's point, quantitative easing may have some effects in the short run, but if it is not a great help for the long run, we will definitely have to find another way to stimulate our economy and help debt and inflation in the long run. Changes in the short run may be very popular because they seem to work now, but as we have learned, quick and easy changes are not always the answer to success in the long run for our country. I also agree with Mitchell's point about the banks already having money in their reserves. Why will this cause them to purchase more assets if they already have money in their reserves now? This policy seems to have some flaws that need to be very well justified in order to put it into place.

pj cline

I completely agree with Maddie that our economy will need help in the long run. Although quantitative easing, the ability of the FED to keep interest rates low or buy further financial assets, may help our economy in the short run in the long run it will do nothing. The short-term benefits will run our eventually. Capital investment is the key factor to ensuring long run success. Unfortunately, until we ensure that our economy is doing well presently, before we can not look to the future. To ensure the future financial success of the American economy I hope that Janet Yellen succeeds Ben Bernanke as the chairman of the FED. From there we can look to gains in capital investment.

This article also talks about what we discussed in class that the FED can manipulate the interest rate and hence the economy through the buying and selling of U.S treasury bonds. When the FED buys treasury bonds it puts excess cash in the economy which leads to low interest rates. The opposite is true for when the FED sells treasury bonds. Right now the FED is buying bonds with the hope that banks lend out the extra cash. Unfortunately the banks are not loaning it. This may lead to the federal government to have direct injections into the economy, so that the money can actually help jump start the economy. The article refers to them as T-bills and through them the FED is able to help navigate the economy through tough times.

Kasey Canon

I found this article very interesting. It ties in nicely with what we have been discussing in class. As the author states, the primary duties of the FED are to maximize employment and to keep stable prices. The FED pursues these two goals through changes in interest rates. However, because the interest rate is essentially at zero right now, the FED cannot lower the interest rate any further. Instead, the FED is using quantitative easing. Although quantitative easing aims towards stimulating the economy, our economy will still need help in the long run. As the article points out, quantitative easing is not as powerful as traditional price easing or interest rate lowering policy.

Matt Kinderman

The article helps articulate in a helpful and clear narrative how the Fed stimulates the economy. What I found particularly interesting was the Fed’s method of quantitative easing. We are aware of the means by which the Fed controls the economy through changing the interest rate, but what happens when it approaches the lower bound. The article explains how the fed is using a new method called quantitative easing. Once the price changing mechanism is maxed out, the only other way of change is by changing the quantity. This non-traditional mean seems to have somewhat of an effect, although as the article points out, clearly it is not enough—helpful fiscal policy and a world economy are other exogenous variable important to keep in mind.

Emily Utter

This article discusses an issue that we are focusing on in the class: what happens when lowering the interest rates to as low as they can go doesn't cause any change? Other than this question the rest of the article is all review of what we have learned in class already. It starts off by explaining the Feds reasoning for lowering interest rates, how it occurs, and what it is supposed to do. It then goes into what happens when this doesn't work as the Feds want it to. And the answer is that it just has to keep doing what it is already doing; buying reserves. As the article states: This will hopefully continue to pursue "quantitative easing" once "price easing" hits the lower bound.

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