To begin with, Federal Reserve (or Fed) is one of the most powerful and influential institutions on the global economy in the world. It has a great power and affects the lives of Americans in many ways. Why? Because it controls the money supply. Namely, it is the 'tap of economy' and when the tap is wide open, interest rates fall and people spend more freely and borrow money easier. The Fed regulates commercial banks and supports the banking infrastructure. If they want to stimulate the economy by lowering the cost of borrowing, they can offer discount rates ( although banks prefer to borrow from other banks first) or they use the federal funds rate (rate that banks charge each other for short term loans). Fed can also do the opposite. It can raise interest rates and the cost of borrowing funds so that we spend less. It's significant role is to 'facilitate a sustainable pace of economic growth', it must keep some sort of balance. The people who are in charge of this (Ben Bernanke, 12 Reserve Banks and the board of governors) must therefore cleverly predict (or know) what impact a change in interest rates will have on the economy.
Comparing Ben Bernanke to a God seems too strong for me, but he definitely is one of the most influential persons in the economic (and therefore real) world.
No comments:
Post a Comment