Fed Reduces Stimulus Spending, Shows Faith in U.S. Economy
The Federal Reserve is pumping new life into the stock market after its decision to reduce the amount of treasury bonds it will purchase in 2014. People interested in a career in business might want to look out for more job opportunities as the Fed's faith in the U.S. economy is stimulating companies across the country to increase operational expenditures.
Reasons for reduced spending
The Fed has chosen to limit its $85 billion a month spending because of improving economic activity and the current condition of the labor market. Both point to broadening economic growth. When Fed Chairman Ben Bernanke announced the Fed's decision on Dec. 18 to taper off the economic stimulus, Wall Street responded enthusiastically. The Dow Jones average rocketed to almost 300 points. The price for bonds fluctuated, but by the end of the day, 10-year bonds saw very little change.
The recent drop in unemployment rates, which occurred faster than economists had predicted, also buoyed he Fed's optimism. Economists expect unemployment, which is currently 7 percent, to get as low as 6.3 percent by the end of 2014, before possibly dropping as low as 5.7 percent in 2015.
Structure of stimulus taper
The overall plan of the Federal Reserve is to trim its $85 billion a month purchases to $75 billion a month beginning in January 2014. About $40 billion will be spent on U.S. treasury bonds and $35 billion on mortgage-backed securities. By increasing the demand for treasury bonds, the Fed hopes to prevent long-term borrowing rates from increasing, while also encouraging the public to purchase homes, new cars and make business investments for the future.
Bernanke emphasized the Fed's commitment to keep short-term interest rates. Recent economic growth has given companies more of an incentive to borrow from banks to expand their businesses. With larger spending budgets, an enterprise can focus on building stable operating practices and afford to increase its employee roster.
The Fed has been stimulating the U.S. economy by investing trillions of dollars total since the 2008 financial crisis and the Great Recession. With the Fed's decision to limit stimulus spending, and projections of the economy slightly stabilizing, businesses can now focus more on future economic growth.
This article is sponsored by Western Governors University, a nonprofit, accredited, online university. WGU offers online bachelor degree programs in business and online MBA programs. To find out more, please visit www.wgu.edu/wisecareers_business.