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

Video British Fighters On Frontline of ISIS Information War

It’s estimated that several hundred British citizens are fighting for Islamic State alongside other foreign jihadists More

Multimedia Hit Song Delivers Ebola Message in Liberia

'Ebola in Town' has danceable beat, while also delivering serious message about avoiding infection More

Video New Technology Gives Surgeons Unprecedented Views of Patients’ Bodies

Technology offers real-time, interactive, medical visualization and is multi-dimensional More

This forum has been closed.
Comments
     
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.
Native Bees May Help Save Cropsi
X
Deborah Block
August 22, 2014 12:23 AM
U.S. President Barack Obama has called for a federal strategy to promote the health of bees that have been declining. The honeybee has been waning due to parasites, disease and pesticides. Wild bees may be used to take over their role as crop pollinators. Scientists first need to learn a lot more about wild bees, says biologist Sam Droege, who is pioneering the first national inventory on native bees. VOA’s Deborah Block went to his research laboratory in Beltsville, Maryland, to bring you more.
Video

Video Native Bees May Help Save Crops

U.S. President Barack Obama has called for a federal strategy to promote the health of bees that have been declining. The honeybee has been waning due to parasites, disease and pesticides. Wild bees may be used to take over their role as crop pollinators. Scientists first need to learn a lot more about wild bees, says biologist Sam Droege, who is pioneering the first national inventory on native bees. VOA’s Deborah Block went to his research laboratory in Beltsville, Maryland, to bring you more.
Video

Video US Defense Officials Plan for Long-Term Strategy to Contain Islamic State

U.S. defense officials say American air strikes in Iraq have helped deter Islamic State militants for the time being, but that a broad international effort is needed to defeat the extremists permanently. Defense Secretary Chuck Hagel warned Thursday that the group formerly known as the Islamic State in Iraq and the Levant, or ISIL, is better organized, and financially and militarily stronger than any other known terrorist group. Zlatica Hoke has more.
Video

Video Drug-Resistant Malaria Spreads in Southeast Asia

On Thailand’s border with Myanmar, also known as Burma, a malaria research and treatment clinic is stepping up efforts to eliminate a drug-resistant form of the parasite - before it spreads abroad. Steve Sandford reports from Mae Sot, Thailand.
Video

Video Gaza Conflict, Hamas Popularity Challenge Abbas

The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Nigeria's 'Nollywood' Movie Industry Rolls in High Gear

Twenty years after its birth in a video shop in Lagos, Nigeria's "Nollywood" is one of the most prolific film industries on earth. Despite low budgets and whirlwind production schedules, Nigerian films are wildly popular in Africa and industry professionals say they hope, in the future, their films will be as great in quality as they are in quantity. Heather Murdock has more for VOA from Lagos.
Video

Video UN Launches 'Biggest Aid Operation in 30 Years' in Iraq

The United Nations has launched what it describes as one of the biggest aid operations in 30 years in northern Iraq, as hundreds of thousands of refugees flee the extremist Sunni militant group calling itself the Islamic State. As Kurdish and Iraqi forces battle the Sunni insurgents, the fighting has forced more people to flee their homes. Kurdish authorities say the international community must act now to avert a humanitarian catastrophe. Henry Ridgwell reports for VOA from London.
Video

Video Cambodian American Hip Hop Artist Sings of Personal Struggles

A growing underground movement of Cambodian American hip hop artists is rapping about the struggles of living in urban America. Most, if not all of them, are refugees or children of refugees who came to the United States from Cambodia to escape the Khmer Rouge genocide of the 1970s. Through their music, the artists hope to give voice to immigrants who have been struggling quietly for years. Elizabeth Lee reports from Long Beach, California.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.

AppleAndroid

World Currencies

EUR
USD
0.7492
JPY
USD
102.27
GBP
USD
0.5960
CAD
USD
1.0950
INR
USD
61.300

Rates may not be current.