Ben Bernanke Makes Big Decisions About Economy
What is the Fed Doing?
The FED has announced their insider market predictions for the world’s markets would be published on January 25,2012 and periodically afterwards. This landmark act would put the FED’s view on every field, from property sales to stock options, in the hands of the investors. These projections are some of the most reliable in the world. This publicizing of information is designed to prepare firms for future turns of the market and inject faith in the financial sector into the capricious investors. Hopefully, this will kick-start a financial boom.
Why is the FED publishing its reports?
The Federal Reserve is hedging against financial busts. Busts in the stock market rapidly dissolve trillions of dollars in just days. The Federal Reserve System, the central banking for the United States, is designed to prevent such catastrophes. In recent years they have been successful in mitigating busts; however, they have never been able to prevent them. The FED is attempting to build a new, innovative barrier against sell offs with by posting their predictions: trust.
Why does trust matter?
Trust is essential. Investor’s careers revolve around moving money. They buy up capital, which is anything from stocks to beach condos, and sell it once it reaches peak value. Then they repeat the process. This simple cycle is the basis of Wall Street. When inventors do not have faith in the market problems multiply.
Nervous investors sell off in droves at the least opportune times. This can create market failure, instantly obliterating massive quantities of capital. By selling off hastily these investors are wasting value and are actually hurting the value of their capital. Investors that trust the market do not sell off capital until the time is right. This builds up the market and has allowed the financial sector to prosper.
Through publishing its own facts and figures the FED is injecting trust into Wall Street. By predicting the trends across the market the FED is allowing investors can acclimate to bends and dips in their projections before they arrive. Before, capacious investors would be sent into widespread sell-offs at the slightest worry. The FED hopes that their own figures will calm fears in tumultuous times and weaken the gravity of these sell offs. The FED is coaxing the investors into a much more reliable rise-decline market cycle which is greatly preferable to the destructive boom-bust cycle we have at present.
Why has the Fed not published it’s predictions before?
They were afraid they could be wrong.
Predictions are never perfect. Even in the best of times the finest analysts in the world can only make guesses about the state of the market in the near future. The further out projections plan the less reliable they are.
Previous FED officials were concerned that unforeseeable fallacies in their predictions would disrupt the markets. Black swans, events which are both highly unpredictable and highly destructive, could tear asunder all predictions and undermine the credibility of the FED. A loss of trust in the FED, perhaps the single largest force in the world of investing, would result in financial armageddon.
Will this action jumpstart the economy?
The finicky investors need this trust to be prosperous. Before the 2007-2008 Recession the market moved gracefully, positive trends of perhaps a few points per day provided good steady investments for everyone. Today, it is unsurprising for the DOW to jump over a hundred points in any direction. This is bad; it jeopardizes the market because with this capricious behavior no investment is safe. Investors are damaging the market with short sell offs and ragged growth rather than cultivating it.
The FED is pushing the markets back towards the stable growth with their predictions. Investors will have a baseline prediction to affirm their own predictions. In addition, the projections of the FED will become self-fulfilling prophecies. If investors are told the markets will get better they will prepare their own assets for just that eventuality, in doing so they will prepare the market for the FED’s plan of growth. This move will propel the economy in the right direction.