Federal Reserve Bank

Jon Hilsenrath wrote an article that appeared in The Wall Street Journal on 20th November 2012 regarding the intentions of the Federal Reserve Bank to continue pushing down interest rates. Hilsenrath reported the bank’s chairman Ben Bernanke warning that fiscal cliff may bring substantial problems to the economy. Bernanke had assured through a media conference that the bank would do its best to add monetary-policy support in the attempt to bring the economy to recovery. He had hinted that the bank would continue with its policy of having additional asset purchases, and buying mortgage backed securities to ensure that the labor market outlook is improved. Hilsenrath argues that even if the United States government averts a fiscal cliff through reduced domestic and defense spending and sudden income tax raises, the Federal Reserve Bank should anticipate that the use of a variety of policies will finally limit the federal budget deficit. Hilsenrath criticizes the Federal Reserve Bank for its contradictions. For example, Bernanke recently downplayed his earlier indication that the bank would buy more bonds to reduce interest rates and spur spending, borrowing and investment.

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The author’s main argument is that central bankers attempt to be influenced by the decisions of elected officials, especially on spending and taxes. However, some do not guard their independence. His conclusion is that the federal bank is not doing its expected role, which managing the economy whether or not there will be tax increases and spending cuts. The author finally concludes that the bank must purchase long-term bonds funded by the money it prints in lieu of spending about $40 billion monthly to purchase mortgage backed securities.

The subject of this article exposes the fundamentals of central banks. It further outlines several monetary and fiscal policy measures that are used to stimulate or discourage spending, borrowing or investment that are in the module. The author is totally right about the independence of central banks. However, he should not ignore how government decisions on taxes, investment and spending inspire public responses on the same issues. This may create a problem for central banks because they appear as if they are not independent, especially when they explain the economic situation.

Jon Hilsenrath is the Wall Street Journal’s chief economics correspondent. He covers matters relating to the Federal Reserve Bank. He has specialty in bonds, stock and currency markets. He has written many articles on economic recovery. He advocates for tough measures in business and economic growth and recovery and independence of stock markets and central banks. The measures are expected to show independence of parties and their ability to show the direction of policy.

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