Fed Bond Buying Spree Makes Headlines

November 4th, 2010 - 7:21 pm ICT by GD  

By Ranjan Bhaduri
federal_reserveNov 4, (THAINDIAN NEWS) The Federal reserve in its bid to boost the slow economic recovery is planning to purchase U.S. government bonds worth $600 billion in the next few months as it has been reported. It expects that doing so will bring down the interest rates. The economic analysts are divided in their opinion about the new move announced by Fed. Ben Bernanke the Fed Chairman opted for highly unconventional policies in the economic crisis period to stave off a financial collapse. After more than a year he is now trying to cope with issues like high unemployment, political stalemate and a period of deflation.

When Ben Bernanke hinted at the possibility of a bond buying the Dow Jones Industrial Average went up 26.41 points. The move declared by the Fed is more or less in sync with the expectation of the leading economists. There are some risk factors involved in this move as well. As a matter of fact the Fed now will print dollar to purchase $900 billion in bonds of U.S. Government. In other times a spending spree taken by the Fed would mean high inflation since it would permeate the economy with cash and hike the concerns about over spending by the government. Some insiders including Thomas Hoenig are not too upbeat about the new initiative.

The majority of the Fed officials are of the view that inflation is still growing in the other direction. The final economic data points to the expansion of the economy though the rate is not fast. It is going to be the sophomore experiment of the Fed with Bond purchasing.

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