The Federal Reserve should be announcing its interest rate decision later today, and stocks are heading higher on the assumption that the Fed is likely to keep interest rates near 0%, as well as the expectation that the Fed will keep stimulus help coming in. Indeed, what Ben Bernanke says about economic policy going forward is more likely to influence the stock market than just about anything else today, and expectations that he will play up the fact that we’re only at the beginning of the recovery, and that there will be a continued need for economic stimulus for some …read more

What will happen to interest rates as the economy recovers?

Happy Friday!

Over the weekend, Ben Bernanke indicated on 60 Minutes that the recession would come to an end this year, and that recovery would begin in 2010.

As you can see, so far more than $11 trillion has been promised for economic stimulus efforts.

What would you do if the government handed you a check for hundreds of dollars? We found out a few months ago what would happen — and it wasn’t economic stimulus. I wasn’t happy with the original economic stimulus payment because I didn’t think it actually addressed any of our underlying problems with credit and consumer spending fueled by debt in our country. A second economic stimulus would do about as well as the first one. Plus it would add a great deal to our national deficit.
But the folks in Washington have decided that the best way to show their …read more

Today, Federal Reserve Chairman Ben Bernanke went before Congress and testified that economic risks remain. Indeed, departing from his usual, “the economy is on the road to recovery” line, Bernanke made it clear that he is uncertain about a great deal in the economy. He also pointed out that inflation is a very real concern. Extra concerning, in fact, since there hasn’t been complementary economic growth to blunt the effects.
I think he forgot to mention, though, that the orgy of interest rate cuts the Fed made to build “confidence” in the stock market played a very large role in the …read more

This morning, Ben Bernanke delivered an address to an international monetary conference in Barcelona via satellite. His message was mainly one of optimism laced with caution.
One of his cautions was this: That inflation could be a self-fulfilling prophecy. Yahoo News reports on the idea behind inflation as self-fulfilling:
If consumers, investors and businesses believe inflation will continue to go up, they will change their behavior in ways that aggravate inflation, turning it into a self-fulfilling prophecy.
Were consumer prices to keep climbing over a sustained period, that might “lead the public to expect higher long-term inflation rates, an expectation that could ultimately …read more

I expect to see more questions for the Ask the Piggy Bank feature as we head into continued economic uncertainty. Today’s question, which is especially timely, is this:
What is stagflation?
This word has been floating around for a few weeks, but it’s really becoming prominent as Fed chair Ben Bernanke denies that it is happening. Here is a basic look at what stagflation is:
Stagflation is the combination of two words: “stagnant” and “inflation.” It is used to describe economic conditions in which growth is slow (or virtually non-existent), even though inflation is in effect.
Stagflation is considered a phenomenon, since inflation is …read more

As if we weren’t already worried about a recession. Yesterday Ben Bernanke made it clear to Congress that we are in an economic “freefall.” Joy. He even said that some of the smaller banks may fail (the large banks have bailout money and cash inflows from wealthy benefactors).
Don’t panic. Take a deep breath. And get your personal finances in order.