After the 2008 Global Financial Crisis, the Fed is making decisions in how they are going to handle the recovery. There are 2 groups of people that are strongly introducing opposite approaches:
Hawks
– against inflation
– believes that Fed shouldn’t interfere for the consequences might be a future inflation that will put the world in a worse situation
Doves
– argued that the Fed has not done enough which leads to a much slower recovery compared to Fed’s forecast
– believes in more aggressive approach
Much of last year, Fed went to Hawks. But when they’re disappointed with the outcome. They became more aggressive since then.
Fed will be spending over $600 billion. Their main purpose this time will be lowering long-term interest rate.
However, there will be risks involved in this. If they buy more bonds, dollar value may take a hit.
Also, interest rates will be lower; thus, less savings and investments will be created. People in general will have lower income. Companies will be reluctant in investing.
Now we don’t know if that would help the world economy. We still have high unemployment rate. We don’t know if creating inflation in the market will speed up the recovery or worsen it.
http://www.nytimes.com/2010/11/04/business/04leonhardt.html?src=mv&ref=business
http://www.nytimes.com/2010/11/04/business/economy/04fed.html?src=mv&ref=business