The Federal Reserve signaled confidence in the U.S. economy and relieved a few GOP lawmakers Wednesday when it announced it will stop purchasing bonds to stimulate the economy.
Since the 2008 financial crisis, the Fed has kept interest rates at or near zero percent by purchasing bonds in an effort to reduce unemployment and get the economy back on track. It’s deemed the policy of quantitative easing a success, and decided to end the program by November — a vote of confidence in the economy — reported The Wall Street Journal.
Texas Republican Rep. Kevin Brady, chairman of the Congressional Joint Economic Committee, said in a statement ending the unusual policy is the right decision. “Delaying the normalization of monetary policy offers few benefits and poses significant risks to the American economy,” he said in a statement, but added it must be done carefully, in an “orderly and predictable” manner.
Some lawmakers acknowledge the unusual policy may have been necessary for a short time following the crisis, but has now created another bubble by artificially propping up the market for too long.
“In both time and money, QE has overstayed its welcome by years and by trillions,” House Financial Services Committee Chairman Jeb Hensarling said in a statement Wednesday. “Loose monetary policy before the crisis inflated the housing bubble and six years of QE may have just inflated the next bubble.”
The Fed indicated this decision was coming, so it’s not surprising. It’s a vote of confidence in the economy, and the Fed assured markets short-term interest rates should remain near zero for a “considerable time,” reported the WSJ.
But uncertainty about when and how much interest rates will rise has contributed to recent volatility in financial markets. In early October the Dow Jones saw its worst single day drop of 2014. Sen. Rand Paul said at the time it could be a sign of a larger “correction” to come that would not make investors happy. (RELATED: Rand Paul Asks Poor Americans To Give Up On Dems)
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