WSJ headlines and questions for February 1 2012

WSJ headlines and questions for February 1 2012 - Chairman...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
WSJ headlines and questions February 1, 2012. WSJ Headline January 26. Fed Sees Low Rates to 2014 Federal Reserve officials said that they expect to keep short-term interest rates near zero for almost three more years – until the end of 2014. The Federal Reserve has kept the overnight fed funds rate in the range between 0 and 25 basis points since December 2008. Previously, they had said that they would keep short-term interest rates near 0 until at least mid-2013. They also said that they may engage in more bond buying (QE3), but held off for now to see how the economy progresses. Officials hope that by signaling their intentions on short-term interest rate, long-term rates will fall, spurring investment, spending, and growth. Yields on 10-year Treasury notes fell 5.3 basis points to 2.009%. Chairman Bernanke acknowledged that the lower rates won’t be much help to homeowners that are upside down in their mortgages and cannot refinance. The Fed also formally declared that they want inflation of 2% in the long run, a goal
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chairman Bernanke had been seeking since taking over the helm in 2006. The Fed has a dual mandate on inflation and unemployment, but has no specific target for unemployment. Questions: 1. Why would lowering expectations of future short-term interest rates result in lower long-term interest rates? Are announcements like this more effective in lowering long term rates than QE3 (buying long-term securities)? 2. Are small movements in long-term rates like the one the occurred (a 5.3 basis point decline in the 10 year Treasury) likely to spur much more investment and spending? 3. Are there other dangers in this policy in terms of long-run inflation and asset price bubbles? 4. Should the Fed set a target rate for the long-term unemployment rate as well as the long-term inflation rate? Why are they biased in favor of controlling the inflation rate?...
View Full Document

Page1 / 2

WSJ headlines and questions for February 1 2012 - Chairman...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online