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Fallout: The Financial Crisis

Markets respond to bold Fed move

Renita Jablonski Mar 19, 2009
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Fallout: The Financial Crisis

Markets respond to bold Fed move

Renita Jablonski Mar 19, 2009
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TEXT OF INTERVIEW

Renita Jablonski: Markets around the world today are digesting a pretty bold move by The Federal Reserve. The central bank announced yesterday it will unleash another wave of cash into the economy.
That boils down to a commitment of buying as much as $300 billion in Treasuries and doubling the purchase of mortgage debt to nearly $1.5 trillion. The goal is to bring down rates on home loans and other interest rates.

I think we could use some help boiling this down a little further. Edward Hadas of the financial Web site Breaking Views is with us. Edward, what another way to explain what the Fed is doing here and why it’s so agressive?

Edward Hadas: Well, it’s printing a lot of money, that’s what happens when it buys securities for newly-printed money, and that’s supposed to improve the economy. But it’s quite a departure from the standard practice of central banks around the world and in the U.S.

Jablonski: So with a move like this, there are obvious concerns about inflation. And I guess one on take on this is that the Fed anticipated some great difficulty after all of this AIG outrage of getting additional stimulus pushed through Congress. Is that a reasonable take?

Hadas: I think that’s quite reasonable. If Congress is blocking or could block getting cash in people’s pockets — which really one should always remember that’s what we’re talking about is getting businesses and consumers money to spend — if Congress won’t do that, then the Fed’s really the only conduit for doing that, and I think that they’ve done that very boldly.

Jablonski: Do you think this move will finally have an effect on market confidence?

Hadas: Well, it’s had a very positive effect on some markets. But one very important market, the market for the dollar, it had a very negative effect. I guess I’m pretty skeptical that this is going to do the trick.

Jablonski: And so, if it doesn’t, then what?

Hadas: Well, then we’re going to have to grind through some tough economic times, and perhaps we’re going to have to change our economic approach and come up with some newer, new ideas. But as yet, no one’s really come up with anything other than this, so we’re going to have to wait and see.

Jablonski: All right, Edward Hadas is assistant editor with the online financial commentary service Breaking Views. As always, thanks Edward.

Hadas: Thanks very much.

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