5 Larry Summers Is Out
Larry Summers boasts quite a rich resume. He served as the Secretary of the Treasury under Clinton and he was the president of a little place called Harvard University for six years. He is also a professor at the Kennedy School of Government over there. He has also advised presidents, worked as chief economist for the World Bank, etc. One thing he will not be doing is serving as Chairman of the Federal Reserve. He officially withdrew his name from consideration several days ago, citing a potentially “acrimonious” confirmation process he felt could afflict the ongoing national recovery. And he was probably right: the markets jumped up at the news that we would not seek the post.
4 What Will Happen to Interest Rates?
You might not think much about how the interest rates set at the very “top” of the economy affect you, but they actually do have a major impact on your life. The lower the rates at which big banks can borrow money from federal banks, the more readily they will make loans to smaller institutions, like local banks and credit unions. The more easily these entities can get those loans, the more readily they will let you take out a loan to buy a car or mortgage a house. At the news conference following the quarterly Fed policymaking meeting, they may announce an increase in the Central Bank’s interest rate, which has been held at a historically low 0.25%. If that rate goes up, markets will go down.
3 The Fed Is (Almost) a Hundred Years Old
OK, not that this is hard news or anything, but we did think you’d be interested to learn that in December of 2013 the Fed will celebrate its 100th birthday. The Federal Reserve System was established by an act of congress that was passed on December 23rd, 1913 with the intention of stabilizing an economy plagued by “panics” and recessions caused by the lack of a centralized entity capable of large cash infusions, balanced interest rates and managed inflation.
2 The Stock Market May Surge or Drop Depending on a News Conference
Once every quarter, Chairman Bernanke, with beard neatly trimmed above a full Windsor knot, sits down to interface with a roomful of anxious reporters. The things he says have a direct impact on the financial portfolios of millions of businesses and individuals nationally and even worldwide. The Dow and S&P have both surged and plummeted as a result of the Fed’s past news conferences, and it will all hinge on words like “tapering” and “easing” and on whether or not Bernanke plans to maintain current interest rates. The markets are also waiting to see how long Mr. B plans to stick around in the chairman’s seat. He’s expected to step down soon, and what better place to make the official announcement, subsequently sending stocks down the drain.
1 The Fed May Be Easing Off the Quantitative Easing
“Quantitative easing” is Fed speak for “propping up the economy so we don’t fall back into a recession.” It is the process of buying up government bonds, AKA directly injecting cash into the government. The Fed has been purchasing $85 billion worth of bonds every month for multiple quarters now, and while this activity has kept the economy in recovery, it is an artificial means of doing so. An end to the stimulus program would leave the economy standing on its own feet, but it’s not quite ready to do that at present. Thus, the Fed may “taper” its monthly bond purchases, reducing the easing by a few billion dollars a month for now. Though even mentioning that tapering though is likely to have a negative impact on the economy, at least in the short term.
Ben Bernanke is pretty influential, but is he the Most Powerful Unelected Person in America?
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