Low Inflation Gives Fed Wiggle Room

For the fourth time in the past five months, the consumer price index has been below the Fed’s 2% goal. This has been an encouraging trend for those who believe the Federal Reserve should continue their stimulus package, which has been infusing the economy with “easy-money” by keeping borrowing rates low. The $85 billion monthly purchase of bonds by the Fed implemented last year has recently become a largely contested topic; specifically speculation regarding when the program will be tapered off. Several Fed officials are interpreting these readings as positive indications to continue with the program while others are worried that a financial bubble will be created if it continues.

The current monetary policy of the Fed has drastically expanded the size and composition of its balance sheet; a cause for concern that the central bank will struggle to reverse its bond buying program in the future. I’m staying tuned to see how the tapering of the stimulus package will affect the economy.  

Evan Chang

Source: The Wall Street Journal

http://online.wsj.com/article/SB10001424127887324485004578426423767440416.html?mod=WSJ_WSJ_US_News_5

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