Blog 2: Federal Reserve says record-low interest rates needed

The head of the federal reserve Ben Bernanke said in a testimony before the congress that rates of interest will remain low for an extend period. Although the American economy is growing the unemployment remains high.

The Fed has begun undoing some measures taken during the financial crisis. They increased the discount rate to 0.75% from 0.50%. This is the rate which banks must pay to get an emergency loan. The reason for doing it is that the economy is recovering and the sustainable improvements on the financial market.

The most economists do not expect that the Fed will raise his rates for some months. Its fund rate is since December 2008 between zero and 0.25%. This is historically low and the raise from the discount rate has posed some questions about the position of the Fed.

According to my opinion I think that it is good that the Fed gently undoing the measures taken during the financial crisis. In times of crisis you have to take extremely measures but after it you must undo these that the market can recover it self. The fact that the Fed didn’t raise the fund rate may be a wrong decision because when you assure the people that the interest remains low. This can give them the chance to buy things later instead of buying them now.

There is also the budgetary deficit of US government which will rise to a record of $1.56tn according to US president Barack Obama. I understand that the financial crises request never seen measures but the US government stays to invest money in the economy. I think that the market must recover itself and all the bad companies must disappear from the market by going bankrupt. Nobody is investing in a company that is nearby a bankrupt.

Source: http://news.bbc.co.uk/2/hi/business/8534848.stm