Fed Gears Up For Stimulus - Federal Reserve of United States - Assignment Example

Fed Gears Up For Stimulus - Federal Reserve of United States Table of Contents Agreement with the Article 2 Reference 4 Bibliography 4 Summary The selected article is ‘Fed Gears Up For Stimulus’ published in The Wall Street Journal on October 26, 2010. The article is about Federal Reserve of United States and its policy regarding the weak economy and inflation. The Federal Reserve is framing the new policy with regards to the current economic situation by implementing different strategy to control the economic conditions.

The Central Bank is going to reveal a program in US for the treasury bonds which were obtained during the financial crisis (Hilsenrath & Cheng, “Fed Gears Up for Stimulus”). For pushing down the long term interest rate, Fed is aiming to drive up prices of long term bonds. But officials are trying to avoid this scenario as this approach allows them to adjust their policy. Fed Chairman Ben Bernanke is tying to implement the bond buying program as a monetary stimulus program. But the president of Federal Reserve Bank of Kansas City believes that this would turn out to be an expensive monetary policy.

From the view point of the investors, the expectation is high after the announcement of the program. But there is a debate among the investors and analysts regarding the policy. Due to such announcement there have been a lot of movements in the financial market. Certain Fed officials argue that the economy is in a long term transformation phase and the central bank should not make any decisions so early regarding the bond policies which might in future give rise to inflation or hit hard on the assets.

Investors are still in doubt regarding how the policy of Mr. Bernanke will work but its effect is observed in the Dow Jones Industrial Average which was raised to 12% after the announcement of the bond policy. Along with this other commodities prices have increased and the US Dollar has gone down almost 10% against Euro. The chief objective of the program is to force long-term interest rates downward through pushing up the prices of the treasury bonds. Treasury policy has stumbled to about 2.

6% in part as investors anticipate the Fed to be in the capital market for buying bonds. The policy is of acquiring 2-10 years maturity bonds but many of the Fed officials argue that it will be a long term loss which will not reap benefit at all. Agreement with the Article The article has focused upon the vital issue of the bond market in the present economic situation. It provides the view about the policy of long term bond program and the effect that has already taken place in Dow Jones. The expectation of investors and the concerns toward Fed has been depicted.

In contrast to the issue, views of the other Fed officials are provided and an option for better argument regarding the issue is also shown. The involvements of the investors and the Central Bank in the article have provided a complete picture of the bond market issue. The article has accounted for both the view, i.e. in explaining Mr. Bernanke’s policy approach and that of other Fed officials with the Central Bank’s views. The article has been able to summarize the overall views about different opinions that make the article being agreed upon.

There is a graphical representation provided in the article that makes it easy for understanding of this burning issue. Reference Hilsenrath, Jon & Cheng, Jonathan. “Fed Gears Up for Stimulus”. October 27, 2010. The Wall Street Journal US, 2010. Bibliography Kendall, Brent. “Fed Won't Join Banks in Discount-Window Appeal”. October 27, 2010. The Wall Street Journal US, 2010.