The Federal Reserve Faces Critics At Home and Abroad

AMA2-21-14The Federal Reserve’s brand new leader has a lot on her plate. As the nation’s central bank takes the first steps toward tapering down its massive stimulus plan, it faces not just criticism from emerging markets around the globe but also from financial experts at home, who worry bout the Fed’s long-term stability.

A few years ago, the Federal Reserve wasn’t a household term at all, and may Americans would have been hard pressed to identify just what it does. But after the turmoil of the housing collapse of 2008 and us effects al through the economy, the Fed made headlines with its Quantitative Easing plan, version 3, or QE3.

That plan, which famously involved buying up billions of dollars worth of mortgage backed securities and bonds to help keep interest rates low and stimulate economic growth, put the Fed into the headlines – and the crosshairs.

The Federal Reserve is of course the arbiter of the nation’s monetary policies as a whole – and the public face of those policies abroad, too. The Fed’s actions affect interest rates worldwide, as well as the valuation of the dollar and other currencies relative to it. The bank’s overall stability is essential— and its decisions have far reaching consequences.

The stimulus plan makes that clear. After propping up interest rates for the last few years, QE3 is incrementally winding down – a move that signals optimism about the state of the economy. But a recent summit of the G-20 financial leaders shows that the rest of the world is far form satisfied by the Feds move, with the most concern coming from em3erging markets who fear damage to their trade and currencies.

Add to those concerns new ones about the overall stability of the Fed and its ability to maintain a consistent and clear monetary policy for the future. Those worries were acknowledged by G-20 representatives at the recent meeting in Sydney, where they pledged to create a more transparent and accessible policy statement.

These decisions come at a time when the housing recovery appears to be generally on track and employment numbers look somewhat more promising. Fed officials are reserving the option to “taper up” on the stimulus if either of those figures takes a down turn. And that’s a move that will have global consequences too.

The Fed is trying to shore up its image by addressing the worries of both the international and domestic financial worlds. That means recalibrating its policies – and its image – to present a clearer and more unified message – one that plays as well on the international stet as it does for the home crowd.

For income property investors building wealth as Jason Hartman recommends, the Fed’s direction on the stimulus – and the contributions it makes to world money markets – are worth watching, since they have the power to shape the world of money for years to come.  (Top image: Flickr/imagesofmoney)

Read more from The American Monetary Association:

Open the Banks with Adam Andrzejewski

Boreas and Friends Take a Toll on the Economy

The American Monetary Association Team


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