What will the Fed do now? That’s the question on everyone’s mind after May’s dreary economic data. Ben Bernanke faces some tough decisions this summer…
In the midst of the growing fiscal woes across the globe, many in the U.S. believe the Fed should be doing much more in order to spur domestic GDP growth.
In the coming days and weeks leading up to the Fed’s June 19 and 20 meeting, leaders are contemplating the proper course of action regarding the future of monetary policy.
With no definite answers in site, the Fed appears divided on the issue. A number of Fed officials aren’t confident that buying more bonds when interest rates are already historically low will prove effective. Sources with the Wall Street Journal indicate that many Fed members are concerned about putting the country at risk for higher inflation or the potential for a future financial bubble possible if the Fed keeps adding on to its $2.8 trillion portfolio of securities and loans.
Nonetheless, the jobless rating has remained rather stagnant over the past few months; it was 8.2% in May. Meanwhile, the economy only showed an annual growth rate of 1.9% in the first quarter. For these reasons alone, some Fed policy makers assert that more action (easing) is necessary in order to accommodate for the bleak economic outlook.
Charles Evans, president of the Chicago Fed, is one proponent of this philosophy. According to Evans, the Fed must assure the people that it will not raise interest rates until unemployments creeps back down below 7%. Evans worries that employment will stall and he will likely “shave his growth forecast” based on May’s grim economic data.