Ever since the initial financial disasters of late 2008, the Federal Reserve System has initiated seemingly sweeping measures to help ease the burden on homeowners and potential homeowners. First, they slashed interest rates to record lows to encourage continued borrowing. It saw results, but nothing near what was needed to help the economy. Next was the Fed’s move to buy up the long-term Treasuries no one else was going to buy, something known as quantitative easing. It saw some benefits, but not enough, and the Fed recently decided to try and sell-off short-term Treasuries in exchange for long-term bonds in what was famously dubbed “Operation Twist.” The ultimate goal has been to lower interest rates across the board through a backdoor federal stimulus, which amounts to the Fed pushing the boundaries of its limitations as far as affecting the economy is concerned.
While these measures have been huge, immediate, and highly targeted in their approach, it doesn’t take a Wall Street Journal subscription and visits to IRA.com to see that the economy remains a mess with no good news in site. Top-tier Federal Reserve employees are as aware as we are of the unwavering nature of these tough economic times. Yet growing disagreements within the Fed, highlighted by recent comments made by head of the Federal Reserve Bank of New York William Dudley, speaks volumes about the way the central bank of the United States is dealing with its new found status as the ostensible only hope for American homeowners. Some say the Fed has done enough, while others say the central bank’s actions since the advent of the economic downturn are only the tip of the iceberg as far as potential action is concerned.
Many individuals underestimate the power of the Federal Reserve, and specifically many homeowners fail to appreciate how much potential there is for the decisions of the Fed to deeply affect their lives. Part of this, of course, is due to the recent apparent ineffectiveness of Federal Reserve action. But as the entity in charge of determining the value of US currency, it’s worth pointing out that the Fed officially operates outside the confines of the federal government, and the actions it takes do not need the approval of the President or the United States Congress. While Congress is the branch that grants the Fed its power, and therefore Fed leadership must occasionally testify before Congress, this is merely a matter of ritual and exists only to give elected officials some “grill the bureaucrats” footage on their highlight reel.
But the caveat, albeit one we ought to be grateful far, when it comes to Fed power, is that those in charge of the American central bank are incredibly frigid decision makers when it comes to making huge purchases, sells, and adjustments. Many recognize that the awesome power of the Fed is at times frightening, and major choices today can have horrendous consequences on the future. In fact, many economic experts avow that the laissez-faire policies of former chairman of the Federal Reserve Alan Greenspan are mostly to blame for the mess we’re in today. Toying with interest rates and, therefore the value of a nation’s currency, can cause the downfall of an entire economy if such decisions are made without the right recipe of caution. For every talking head over at the Fed who wants to see more action to help homeowners and and lower unemployment through their own actions, there is at least one who completely disagrees.
Being unwilling to use the Fed’s powers to their ultimate extent at a time of economic uncertainty is not a failure of accepting one’s responsibilities when you consider the fact that other more entitled entities within the federal government are much more capable of changing the nature of the game in order to boost the economy – mainly Congress. But the inability of Congress and the President to effectively do something about the stagnant economy indicates that someone has to do something. Should it be the Federal Reserve? It shouldn’t have to be, but what other option do we have?