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Thursday, March 6, 2014

The current Fed chief Janet Yellen has stated that the US economy is falling short of the objectives set out by the central bank. And she believes that more will have to be done to ensure full employment and maintain stable prices. Interestingly, the US Fed began trimming its bond purchase program recently on the claim that the US economy is beginning to witness signs of a recovery. But it is looking more and more apparent that this recovery could be a false alarm considering that growth has remained sluggish and unemployment has not come within acceptable levels. That the job scenario is not too good is something that even Janet Yellen acknowledges. So future strategies with respect to the bond purchase program will depend a lot on the how the outlook pans out. If this turns out weak, it will hardly be surprising if the Fed reverses its policy and goes in for bond buying again. Ms Yellen is also keen on strengthening the financial system through the Dodd-Frank Act. So far, clamping regulations on the financial system post the crisis has been a murky affair. So it will be interesting to see whether the Fed chief will be able to make significant progress on this front.

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