Recently, the U.S. Senate approved President Obama’s nominees for the Federal Reserve’s Board of Governors with Stanley Fischer, Lael Brainard and Jerome Powell, who are reported by the Washington Post to decide the fate of the U.S. economy this month. Fischer is a former governor of the Bank of Israel, Brainard is a former U.S. Treasury under-secretary of International Affairs, and Powell is a private equity manager for the Federal Reserve who is now serving a second term. The report also states these recently-elected officials will decide whether to halt the continuous stimulation plan set by the Federal Reserve years ago which included unseen and unheard-of low interest rates often attributed to former chairman of the Board of Governors, Bernard Bernanke.
The Federal Reserve Bank yields tremendous power as the central bank of the U.S., and how the bank stimulates the economy. According to the Market Wired website, the Federal Reserve has “four general areas” which include monetary policy that promotes economic growth and employment, stabilizing the U.S. financial system, including markets, regulating institutions pertaining to the banking systems in the U.S to ensure safety and legitimacy, and providing services with other financial institutions, including foreign ones.
As most of the U.S. knows, the Federal Reserve had been purchasing mortgage-backed security bonds and shares from major banks, including Bank of America and Citigroup. This includes the infamous “bailouts” provided to firms and banks, as well as the “creation of a temporary Commercial Paper Funding Facility” to help non-banks with liquidity, as mentioned in a timeline detailing two terms of Bernard Bernanke on Business Insider’s website.
Bernard Bernanke stepped down at the end of 2013 while leading the U.S. monetary policy during the worst recession in recent years. The timeline on Bernanke’s decision-making efforts mentions how the Federal Reserve has been reducing their efforts to stimulate the economy as recent as the end of 2013. This plan, which is still being sought by the nominees, had included reducing the purchase of market bonds by $10 billion to bring it from $85 billion to $65 billion by the end of 2013- with plans to continue the decrease throughout 2014. The Washington Post even reports the current Federal Reserve nominees are thinking of raising interest rates.
The Federal Bank may be the deciding factor in the stimulation of the U.S. economy as it has been for the past five to six years while dealing with a recession and unemployment in the U.S., but as the report from the Washington Post indicated, Fischer, Brainard, and Powell may just have to decide whether to keep reducing bond purchases by another $10 billion, or “calibrate its exit plan,” as Brainard had suggested. In any case, the Seeking Alpha website reports the Federal Reserve plans to lower their forecast on the growth of the economy- which is consistent with U.S. Secretary of Treasury, Jack Lew’s announcement made prior that week. The Feds had anticipated a 2.9 percent economic growth for 2014, but have now revised their forecast to 2.5 percent- attributing the decrease to poor weather in the winter of 2014. With the way the economy has been swaying, however, these newly-appointed Board of Governors must make a decision that keeps the national unemployment rate, increasing wage demands, and growth of the U.S. economy in mind!
By Liz Pimentel