Interest Rates Raised Again
Greenspan
raises rates
by Jalakia Fisher,
Writer
09.22.05 US Federal Reserve chairman Alan Greenspan has recently
offered the America public his views on the economy. His comments touch on more
than the rising cost of fuel.
"People should not count on that paper wealth, which can
evaporate if economic conditions deteriorate rapidly," Greenspan stated earlier
this year. His comments give warning to those who see the economy improving
since the events of September 11th.
Greenspan states that people do not understand that one event can turn the
economy backwards past the events just three years ago. His comments came before
the devastation of Hurricane Katrina.
An unforeseen natural disaster, cautious investors or a sudden slow down in
consumer, and business spending could send the economy into an upheaval. This
problem affects all major markets of our economy. This would send many Americans
into financial ruins. Hurricane Katrina has also brought back focus on rising
fuel prices that have recently reached record highs. The economy is not getting
any help from large, commercial businesses such as airlines and insurance
companies. Many of which have filed for bankruptcy and foreclosure in the last
few weeks alone. The government is not able to help these businesses financially
causing those who haven’t already closed their doors to cut jobs by the
thousands. One such airline is Delta. Delta recently put a dent in their
employment by cutting more than 9,000 jobs in their United States offices. One
problem blamed for the recent cut: the rising cost of fuel. If airlines cannot
fuel their planes, they cannot fuel their employee’s paychecks. This is just
another issue raised by Greenspan in his previous comments.
With such financial woes occurring across the board in the American economy one
can only expect the Federal Reserve to boost interest rates. The Federal Reserve
has already raised interest rates a consecutive eleven times. This is a sign
that the Fed is concerned about inflation and is trying their best to cushion
the economy for the blows it is about to endure. Although, the Fed is trying to
hold out and hold onto longer-term inflation, they cannot control all things
aimed in our direction. This is just another lesson from Hurricane Katrina. Even
after Greenspan commented that bond investments have become a sort of conundrum,
he remains optimistic about the possibility of a stable and growing economy.
But, he has stated, this can only happen if the American public and government
work together to control spending, investment banking and bonds.
Even though the Federal Reserve has raised rates by a two percentage points, it
still a low-level rate hike. This leaves the Fed with room to raise interest
rates even more until they are reached a point that economy can no longer
function. There is no written rule stating the neutral fed fund rate. The Fed
leaves the door open to avoid financial downfall in the economy in the event of
a national emergency or disaster. It has been stated by many analysts that the
Federal Reserve could raise interest rates five more times this year before we
see a cut off point. Even then, there is still the unwritten clause that says
another hike is just around the corner.
With all this
information on the table, bond investors still have reason for concern. Most are
worried about a halt in investments than inflation. Some say that you cannot
look at past records to predict future financial success or failure due to the
ever-changing economy. Others, such as Greenspan, call this “irresponsible”.
There is always the question of why the Federal Reserve is raising rates. It is
safe to say that the economy is not okay. It is also safe to say that is one of
the biggest political understatements of the year. Some analysts have stated
that Greenspan maybe looking out for himself. His run as Federal Reserve
chairman ends next January and some think he’s making an economic safety net.
Greenspan supporters state that his run as chairman has more than allowed for a
safety net for the economy and his career.
When an individual looks at the American economy right now they must see the
reality. We are in a shaky time. The financial outlook could grow or take a
pitiful downfall to the point of no return. Either way, it won’t be for lack of
trying. For that matter it won’t be an over-night done deal. It is time for
Americans to look at and take stock in their own financial portfolio. Greenspan
simply states to have a plan because if you do not, one will be made for you.
sources: Federal Reserve, AP |
Alan Greenspan, Chairman of the Federal
Reserve (AP)
|
