The Federal Reserve's Zero Interest Rate Policy

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

For this assignment I picked “the role of the Federal Reserve” a mere recital of the economic policies of government all over the world is calculated to cause any serious student of economics to throw up his hands in despair (pg, 74). The Federal Reserve is now in the business of enforcing the United States government’s drug laws, even if that means making a mockery of both state governments’ right to set their drug policies and the Fed’s governing statutes. A Federal Reserve official who played a key role in the government 's response to the 2008 financial crisis says the government should do more to prevent a repeat of that crisis and should consider whether the nation 's biggest banks need to be broken up. Neel Kashkari says he believes the most major banks still continue to pose a "significant, ongoing" economic risk. The next ten years will see an explosion of government debt and an implosion of government’s ability to fulfill its promises. Any economic or investment model based on past performance under previous economic conditions will be worthless just as useless as the Federal Reserve’s models.

10. An investment of $1,000 today will grow to $1,100 in one year. What is the continuously compounded rate of return?

FVN = FV5= PV × (1 +I)N = $500 x (1 + 0.08)5 = $500 x (1.08)5 = $734.66

The Federal Reserve’s goal is to keep the national inflation rate at 2 percent. This change is seen when buying groceries. The price of milk goes from $2 to $2.04. This can prove costly when the 2 percent is added over time. So, why is inflation out pacing minimum wage? The answer, because it will do harm to employees and business owners.

The Federal Reserve (FED) is the central bank of the United States. One of its purposes is to set interest rates at which banks lend each other money and another interest rate by which banks borrow money directly from the Fed ("How Interest Rates Work."). The interest rates set by the Fed affect the borrowing, the lending, and by extension the economy of the country. Any changes in the interest rates at which banks borrow money from the Fed will influence the country’s economy. Thus, the higher the interest rate, the lower loans are demanded. Consequently, due to this mechanism, the lower the interest rates, the higher the growth of the economy ("How Interest Rates Work."). When the Fed goes down interest rates, banks can borrow money for less.

The Federal Reserve uses two other types of tools besides the open market operations (OMO), and they are the discount rates and reserve requirements. The FOMC is responsible for the OMO and the discount rate and reserve requirements are taken care by the Federal Reserve System’s Board of Governors. The three fundamental tools can influenced the demand and supply of and the balances that depository institution hold which can result in the change in federal funds rate.

The Progressive Era, from 1901 to 1918, was centered on change. There were four main goals of Progressivism: protecting social welfare, promoting moral improvement, fostering efficiency, and creating economic reform. President Woodrow Wilson, elected in 1912, made the most important change of the early 1900s; he passed the Federal Reserve Act.

     Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To quote, "Industrials Edge Up 4.32 Points Amid Caution on Interest Rates," and "Industrials Track On 13.53 Points Despite Interest-Rate Concerns." Why such a concern with interest rates? A week before, in the last week of March, the Fed had pushed up the short-term rates. This

The Federal Reserve’s (Fed) Quantitative Easing (QE) refers to easing the market situation by quantity. QE is a monetary policy used to stimulate the United States’ economy by injecting money into the market. The policy was done by the central bank that prints money to buy the government bonds from financial institutions. Other than that, the Fed also set the interest rate to be between zero to a quarter percent to encourage the public to borrow money from local banks. The economists hoped to boost the economy by increasing the investment.

America has gifted my generation many gifts through their history, but low interest rates stand out to me. I can go to college and pursue my passions without worrying or sacrificing anything for money to pay to the bank. In the future if I take out a loan, I can feel confident that I will not have to live for years in debt, not wasting a penny for anything else out of leisure. Low interest rates provide me and millions of Americans’ a chance to live up to our dreams that we had as children, to be doctors, or ballerinas, or ski racers.

Today’s financial crisis has deeply impacted all areas of life not only in the United States, but also the rest of the world. Company giants such as Circuit City® and Merrill Lynch® have fallen victim to the financial crisis. One of the biggest industries the financial crisis has had an impact on has been the housing market. Everyday newspapers, journal articles, and television media cover stories regarding foreclosures around the country. To regain financial control of the world and domestic economy, one must begin with the housing market. There are various areas of the housing market, which allow for overhaul and maintain a prosperous future. Regulating bank interest rates and federal interest rates will reduce, if not eliminate the

(Compound value solving for I) at what annual rate would the following have to be investe

The monetary policy is among the most crucial tools the United States central bank can put into use so as to achieve the various economic objectives. The outlook of the US economy should underline the progress that the Fed reserve has initiated towards the mentioned dual mandate which has been put into place by the Fed reserve towards the constant dual mandate goals of employment to the maximum in the price stability context (Steven, 2011). Over the recent times or years, the US economy has progressed towards the outlined goals. However, in the context of the United States monetary policy, the rate of unemployment is still at high levels while the rate of inflation is too low. Due to the uncertainty of the US monetary policy, normalization can be determined since it is data dependent (Axilrod, 2011). Whenever there is a shift in monetary policy, it is crucial to be mindful of the most likely occurrences since they come alongside by certain degrees of market turbulence and stress. Additionally, if the US monetary policy is normalized, some certain challenges will be formed for the economies in the emerging markets (Steven, 2011). It is upon the Federal Reserve therefore to address the risks that come with the US monetary policies.

Regulation of the economy is very critical because any economy is susceptible to the fundamental mismatch that can possibly lead to negative externalities in demand for liquidity, which include bank runs and credit cycles. In a well-functioning economy, there should be easy access of money-like instruments (safe assets) to promote liquidity. Safe assets refer to highly liquid assets which can be easily converted into cash without affecting the financial value of the asset. Further, there must be a platform for facilitating creation and exchange of securities, thus creating assets and liabilities (credit system) for the market players. Asset holders expect a return on holding assets because of the risks they assume by holding the liquid assets. However, producing