Ben Bernanke resigned from the US Federal Reserve yesterday without altering the monetary policy that he put in place. Specifically, the Fed has decided to reduce its stimulus buying by another 10 billion dollars per month to 65 billion.
The decision shows that the Fed will continue to focus its attention on what is happening in the United States and Europe and that it will stick to its growth forecast. The volatility that we have seen in emerging economies recently should not extend beyond their borders. Central banks in these countries have already tried to increase interest rates in order to fight a financial crisis. This is their responsibility, but they also suspected that Bernanke was not going to change the Fed's strategy enough to affect them. If the Fed had cut its stimulus spending, this action would show that it though that the ripples in emerging economies were enough to hurt recoveries in developed Western nations. The Fed has pointed out that "economic activity and the jobs market are improving along with the overall economy." Based on this opinion, it also decided to keep interest rates near zero percent.
If the forecasts are correct, then interests rates will start to rise slightly through 2015. After that the unemployment rate could dip beneath 6%. As a going away present for Bernanke, the Fed voted unanimously to back his proposal. He has not received a sweeping approval like this since June of 2011, which hints that he has finished strong and that the US economy is back on its feet.
