Awaiting the Federal Reserve’s next move!

There is high anticipation from the United States Federal Reserve Board that it might announce some new decisions so that USA financial or economical market can be improved and also the interest in the investors can boot up to make the more investment in the Unites States of America. Suppose that Federal Reserve is a rock concert as an economic amplifier but at a lowest zero level option seem like doing nothing. It might seem too unclear from this about the future of economic environment of the United States of America.  Chairmen Ben Bernanke and other senior executives of the Federal Reserve stated in their report that the economy of United States of America is slumping and the threats have been reported by the Europe’s debt crisis. The two day meeting of the Federal Reserve’s executives decides some rules and regulations and made some changes to the market as by setting the interest rates, that gave the bleaker picture for the United States of America economy. It has been investigated by the economic analysts that Federal Reserve will not give much support for the economic empowerment to increase the economic strength. Federal Reserve has given some options for their perceived likelihood as discussed below:

Extend Operation Twist:  Under this twist the Federal Reserve have planned to sell USD 400 billion in short term treasury securities from September 2012 and will go to buy the long term treasury securities that will make the financial situation better. Investor will be attracted to this for a long term to get the high return.  In order to take decision for this the Federal Reserve will go for to lower the long term rates and increase the short term rates. It has been decided to fasten the economic growth of the United States of America but instead of it the Federal Reserve has restrict the option to make easy the monetary policy. There is advantage of this decision in the economic environment is as potentially lowering the long term rates because it is due to not expanding the Federal Reserve’s record high portfolio. It was explained in the meeting of the executives that in case the Federal Reserve if it goes for expanding the portfolio of the investments it may raises the risk of high inflation later. The next move of the Federal Reserve indicates that operation twist that has been defined by the Federal Reserve will be expiring by end of this month. The economic experts and the analysts say that Federal Reserve will rethink on the deadline and will announce for the extension of the deadline.

Third round of quantitative easing

The analysts observe that when the Federal Reserve will expand its portfolio through buying the more bonds as long term, it is considered as the quantitative easing. The monetary policies of the government when occasionally go for increase in money supply after buying the securities issues by the government and also buy the securities from the market. Quantitative easing increase the options for the money supply by flooding the financial institutions that helps in increase the lending and liquidity for the economics and finance situations over the United States of America market. In case the interest rates has already been lowered by the Federal Reserve but still the quantitative easing has attracted the central banks towards the investment. Still these policies failed to produce the desired effect. The ultimate risk of this decision is that even because the more money is floating around still the fixed amount of goods can be used for sale. This decision will lead to higher prices or inflation.  Federal Reserve has already been involved in the number previous rounds for the sum more than USD 2 trillion. In the third round the budget has been increased by twice of the earlier in the QE3. It can be considered as the most dramatic move for the Federal Reserve that it can be made. It would also trigger the most criticism because it would expand the Fed’s holdings by billions more dollars.

Stronger Language

Federal Reserve also made the statement after each meeting so that the change can be made in the statement for the future decisions. It can be said by defining that the pledge of the economy can be improved further and also spells for these statements can be improved. The timetable given by the Federal Reserve can be changed based on the requirement to raise the short term rates beyond the current target of late 2014 till the late of year 2015.

Do nothing

This would lead to the continuation of the Federal Reserve’s decisions so that it can meet the policy standards decided in the meetings in March and April. After these meetings the policy making can be put on hold till the final decision.