Quantitative Easing and Tapering (in 350 words or less)

Quantitative Easing and T…

With continued focus on a fragile U.S. economy, the actions of the Federal Reserve – the U.S. government’s central banking organization, tasked with formulating monetary policy (i.e., controlling the rate of growth of the money supply) – have been under increased scrutiny by economists, politicians, and the media alike. And while words like “quantitative easing” and “tapering” are repeated almost robotically across cable news networks, these concepts are rarely clarified.

During the so-called “Great Recession,” the Federal Reserve, headed by Chairman Ben Bernanke, embarked on a massive program called “quantitative easing,” whereby the Fed began making up to $85 billion dollars in monthly bond and asset purchases. The goal of the program was to put more money into the financial markets in hopes that it would stimulate growth and spur improvements in the overall economy.

With the gradual, but consistent, improvements in the overall economy, questions have been raised as to the necessity of the Fed’s “quantitative easing” program. It is believed that the stronger overall economy will eventually prompt the Federal Reserve to “taper,” or reduce, its monthly bond and asset purchases. In fact, many pundits expect the Federal Open Market Committee (the decision-making body within the Federal Reserve) to begin tapering as early as this month. Mr. Bernanke himself has stated that the tapering could start this year, and that purchases could be phased out altogether by the end of 2014.

It is widely believed that any tapering will lead to increased interest rates across financial markets, which could slow certain portions of the economy, including the fledgling housing recovery. In addition to the mounting strife in Syria, analysts have pointed to the uncertainty of just when the “taper” will begin as a source of recent stock market weakness.

Notwithstanding the market’s fear of being weaned or “tapered” off of the quantitative easing program, many economists have noted that there are dangers inherent in the Fed’s unprecedented bond-buying spree, and that the program could have unintended economic effects, particularly if it is left to continue without any end in sight.

As always, stay tuned to Wright Beamer for additional news and legal updates.

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