The Federal Reserve is set to make its latest policy announcement on
Thursday, and it's probably the most anticipated decision of the entire
year.
Here we'll explain what all the hubbub is about.
Historically, the Federal Reserve has cut interest rates when the economy is weak (to stimulate the creation of credit) and raised interest rates when the economy was getting too strong (and inflation was getting out of control).
During the financial crisis, the Fed cut rates to about 0%, meaning that since then it's had to find new and creative ways to cut rates, since it can't cut rates to below 0%.
The Fed's primary tool has been Quantitative Easing, which means that the Fed goes out and buys US government bonds (and sometimes other stuff like Federally guaranteed mortgage backed securities) with the aim of pushing money into riskier areas of the market, and hopefully increasing the value of all assets, and stoking some inflation.
The Fed has done two rounds of QE, and a round of something called Operation Twist, which is pretty similar to QE.
The belief among many is that a new round of QE will likely be announced tomorrow..
Why?
Here we'll explain what all the hubbub is about.
Historically, the Federal Reserve has cut interest rates when the economy is weak (to stimulate the creation of credit) and raised interest rates when the economy was getting too strong (and inflation was getting out of control).
During the financial crisis, the Fed cut rates to about 0%, meaning that since then it's had to find new and creative ways to cut rates, since it can't cut rates to below 0%.
The Fed's primary tool has been Quantitative Easing, which means that the Fed goes out and buys US government bonds (and sometimes other stuff like Federally guaranteed mortgage backed securities) with the aim of pushing money into riskier areas of the market, and hopefully increasing the value of all assets, and stoking some inflation.
The Fed has done two rounds of QE, and a round of something called Operation Twist, which is pretty similar to QE.
The belief among many is that a new round of QE will likely be announced tomorrow..
Why?
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