FED Tapering and Holding the interest rates down

In general, explain the actions of the Federal Reserve in terms of what we’ve learned in class–why are they holding rates low?

Holding the interest rates down helps in stimulating the economy by creating jobs, helping households and companies finance new ventures and also support the prices of real estates and other assets. Quantitative easing can help stimulate economic by boosting economic activity. For example, it also add reserves to the commercial banking system, this way, it makes it easy for the banks to lend the people more money (Ewing, 2015)

Why are they tapering purchases of bonds?

Quantitative easing through tapering purchase of bonds can help push the long term interest rates as low as possible. Tapering the purchase of bonds also helps stimulate the level of borrowing

Why are they watching foreign economies?

The performance of the foreign economies affects the country’s recovery. For example, weak foreign economies can highly stagnate economic recovery of the US. The US has to raise its interest rates in reaction to the foreign economies.

Why the focus in interest rates and unemployment and why can they keep the interest rates low?

Interest rates and creation are the key economic drivers. The country can easily balance job creation and interest rates as away improving the economic growth of a country. Job creation as a specific economic objective can help the country to overcome financial crisis. There are long term and short term economic objectives and interest in a short term economic objective. Unemployment is a major concern as it affects all the other sectors of the economy. Additionally, employment can be corrected by the fed by simply purchasing treasury securities and the Fed’s mortgage backed securities (Ewing, 2015).

References

Ewing, J. (2015). E.C.B. Sees Early Progress From Its Bond-Buying Program. Nytimes.com. Retrieved 20 April 2015, from http://www.nytimes.com/2015/04/16/business/international/ecb-rates-stimulus-draghi.html?ref=economy&_r=1

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