News / Economy

Wall Street Responds Positively to Federal Reserve Plan

Federal Reserve chairman Ben Bernanke addresses a Federal Reserve conference in Boston, Oct 2010 (file photo)
Federal Reserve chairman Ben Bernanke addresses a Federal Reserve conference in Boston, Oct 2010 (file photo)

Global stock markets surged and the U.S. dollar fell against major currencies following a Federal Reserve decision to pump $600 billion into circulation to push interest rates lower. It is a move intended to accelerate the U.S. economic recovery, and while investors appear to be applauding the move, monetary officials in Europe and elsewhere are not.

President Barack Obama said the American people sent a loud message in this week's midterm elections - the economy is priority number one. "They want us to focus on the economy and jobs, and moving this country forward."

With a divided U.S. government come January, however, analysts say providing further economic stimulus might prove challenging. Republicans, who will take control of the House of Representatives, are opposed to new government spending initiatives. And U.S. income tax rates will increase next year, unless a deal can be struck between Congress and the White House to keep them at current levels.

If the White House and Capitol Hill appear to be at loggerheads, the U.S. Central Bank is moving forward with an ambitious plan - printing money, lots of money, to buy government securities. It is a mechanism known as "quantitative easing."

Former U.S. Assistant Treasury Secretary Richard Clarida said that with short-term interest rates already at historic lows, taking action to ratchet down long-term rates is the Federal Reserve's only option to stimulate the economy.

"Essentially, the Fed cannot cut interest rates," said Clarida. "They are at zero [percent] at the short end. So if they are going to ease [monetary] policy, they have to do it through these quantitative measures." Clarida spoke on Bloomberg Television.

The Federal Reserve's announcement on Wednesday sparked rallies in global stock markets, sent prices for commodities like oil and copper sharply higher, and caused the dollar to fall relative to major world currencies.

In an interview with The Wall Street Journal newspaper, France's Finance Minister Christine Lagarde warned that the Fed's move would put unwelcome upward pressure on the Euro. German Economy Minister Rainer Bruederle suggested that quantitative easing will produce inflation, not economic growth.

The German minister said Federal Reserve Chairman Ben Bernanke seems to believe that economies can be boosted by simply dropping money from a helicopter. The minister added that he does not share that view.

Echoing the theme, Brazil's Finance Minister Guido Mantega said the world wants to see a stronger U.S. economy. But he suggested that dumping money in Washington is not the way to do it.

Stronger currencies in Europe, Latin America and elsewhere will make their exports more expensive and threaten economic expansion.

The European Central Bank and the Bank of England are choosing against additional stimulative measures of their own, and they have decided to hold interest rates at their current levels.

ECB President Jean-Claude Trichet: "The underlying momentum of the recovery [in Europe] remains positive."

Clarida sees quantitative easing as a guard against deflation, which could cause America's economic recovery to stall.

"The Fed is much more concerned about a deflationary outcome of falling prices than it is about a rise in inflation three or four years from now," said Clarida. "And so from the Fed's point of view, with high unemployment and inflation well below its target, it should do quantitative easing. It will clearly lower rates. It will weaken the dollar. And the Fed is hoping that leads to economic growth and lower unemployment."

Analysts say that a swift drop in long-term interest rates could boost America's ailing housing market, which would brighten the nation's economic prospects. But the longer-term effect of printing money is inflation, which would have the opposite effect on interest rates.

You May Like

Germany Celebrates 25 Years of Unity

October 3 is a public holiday, marking the day in 1990 when East Germany and West Germany reunited More

Analysts: Russia's Syria Strikes Shake Regional Powers

If Moscow bolsters Assad, Saudi Arabia, other Gulf countries may feel obliged to step in More

Video Innovative Nano-Tech Water Filter Prevents Disease

It can absorb contaminants like copper, bacteria, viruses and pesticides, says Askwar Hilonga, who has been successfully trying out his product in Arusha More

This forum has been closed.
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs

World Currencies


Rates may not be current.