The Federal Reserve raised the interbank borrowing rate today by one quarter of one percent or 25 basis points. Readers are asking, “what does that mean?”
The Federal Funds rate is still effectively zero. Surprise. Since 2008 the Fed has keep interest rates an unprecedented effective zero, giving a free ride to big debt and Wall Street. The phrase that pays from the Fed is a highly accommodative policy.
Are we witnessing the corruption of central banks? Are we observing the money-creating powers of central banks being used to drive up prices in the stock market for the benefit of the mega-rich?
As most Americans, if not the financial media, are aware, Quantitative Easing (a euphemism for printing money) has failed to bring back the US economy. So why has Japan adopted the policy?
Since the heavy duty money printing began in 2013, the Japanese yen has fallen 35% against the US dollar, a big cost for a country dependent on energy imports. Moreover, the Japanese economy has shown no growth in response to the QE stimulus to justify the rising price of imports.
After the Great Recession had officially began (but prior to the stock market crash of 2008/09) George W. Bush responded to the early signs of economic trouble with a "helicopter drop" in the form of lump sum tax rebates to wage earners to help stimulate the economy. They were provided for in the Economic Stimulus Act of 2008, with support from both the Democrats and the Republicans. The bill was signed into law on February 13, 2008.
Wall Street was all aghast that their quantitative easing was about to disappear. The FOMC decided to taper in January and now stocks soar. Why? Because the taper is minimal and the FOMC announced the federal funds rate will remain an effective zero for much longer than previously estimated.
What is the Volcker rule? The headlines in the press describe a nebulously defined financial regulation as being the second coming of financial reform Yet the only thing clear about the Volcker rule is who it is named after, former Federal Reserve chair Paul Volcker. The Volcker rule was a last minute financial regulation rule in an attempt to stop speculative trading by Wall Street. It has been politicized, lobbied against, delayed, watered down and modified heavily.
This moment is historic. For the first time in history a woman is nominated to chair the Federal Reserve. Assuming Dr. Janet Yellen does a good job, this alone will help millions of women in finance and economics, which to this day is fraught with gender bias and glass ceilings. She is already inspiring the phrase, Yellenomics and referred to as Bernanke Redux for most perceive the Fed and their policies will not change much in the transition.
The Federal Open Market Committee is not going to stop quantitative easing just yet. This is no surprise considering the weak economic conditions and as we pointed out, an inflation rate below expectations. The risk of deflation is real.
The opposition to Larry Summers as Federal Reserve Chair is growing. There is new petition demanding Obama not appoint Larry Summers and already has almost 100,000 signatures. Yet that doesn't seem to phase President Obama who some say seems bound and determined to nominate Summers to the post.
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