According to an article by The Associated Press, those watching the Federal Reserve as it makes further moves in hopes of stimulating the economy should expect only a small blip on the economic radar.
Experts, anticipating more Fed action, have already named the central bank’s next round of action “Operation Twist,” representative of the 1960s plan to keep short-term rates unchanged and lower long-term interest rates (effectively “twisting” the yield curve). Many people say that the idea worked then, but it is a largely futile defense against this 21st century global economic meltdown.
The Fed hinted late last week that it will intervene once again. The hint came just as President Barack Obama rolled out his $480 billion new job plan. But many economists, referencing not-so-distant history, believe that more Fed manipulation will have very short-lived benefit, followed by long-term pain.
The last round of Fed action, totaling $600 billion, left the stock market flopping after a short-lived 29 percent rally. The next round could raise worries among money managers about inflation. The Fed is essentially printing money when buying bonds, and pumping more cash into the economy that will eventually lead to higher prices. People are left to wonder: Is the .05 percent expected economic growth worth higher prices at the pump and the local supermarket?
Many experts also concede that the simple fear of Fed intervention can trigger inflation. If money managers worry about inflation, they are more like to buy oil, gold and other commodities to hedge investments, thus driving up the cost of gas, food and other goods.
Some experts say that more intervention cannot hurt the economy. Most experts say it will do very little good or further damage. But, they say, it is the only ammo the Fed has left.