Federal Reserve Policy

Federal Reserve Policy

 I believe that the Quantitative easing policy is good as it helps the Central Bank to pump back cash liquidity into the financial system. This is because when interest rates have been lowered, and they still do not encourage the anticipated amount of spending, quantitative easing is used as the last option for the Central Bank. The article talks about how low-interest rates make it difficult to generate economic growth, which I think is not true. I differ with the statement because low-interest rates encourage more borrowing. When a lot of people borrow, the interest paid back will be higher compared to what was being received hence more economic growth. Irrespective of the interest rates returns, the increased purchasing power among citizens may encourage buying and selling, thus the development of economic growth, which will result in increased stock prices..

I believe that the common type of stock would be affected positively by the Federal Reserve quantitative easing as they are indefinite and fully depends on how much profit the company makes. Federal Reserve quantitative involves the central Bank taking measures stimulating the economy by trying to increase the money supply and reduce the interest rates. Some of these items bought are financial assets. During this period, investors react by exiting form stocks and prefer to buy money market funds and bonds, terming them as safer investments until when the situation improves. By doing this, Central Bank ensures people have the purchasing power and hence healthy growth of the business. I agree that adding gold to the portfolio will improve the Sharpe ratio. This is because buying of gold by the Central banks is a good choice in times of political as it still maintains the same good resell price. By taking all these measures, the Central Bank ensures that the country does not go into recession.