Fed Watch QE End and First Rate Hike Essay Example | Topics and Well Written Essays - 500 words

Fed Watch QE End and First Rate Hike - Essay Example The central bank in effect increases the monetary base. The need for changes in monetary policy arises from a failing policy or one that is not effective in creating the economic impact required. According to the information gathered and the specific economic signs available, chances are high that several hikes will materialize in the year 2015. Considering various studies conducted on the same, 38 respondents that included analysts, money managers, and economists, there looms a possibility of a hike in the rate in 2015. According to the information gathered, the hike will result in steeper interest rate increases in the coming years. The survey indicates that the rates will hike to a high of 3.04% by the end of 2017 (Liesman). When this takes effect, the Feds take a longer time normalizing the rates based on the need for constant review the rates in consideration of the effect they create. The application of an expansionary monetary policy reaches a point of failure when the interest rates on the short-term run towards zero. These explain situations that quantitative easing becomes applicable. Quantitative easing applied during these periods of low-interest rates aids in improving the inflation rate and reducing its effect. Quantitative easing aids in stabilizing inflation and controlling the rate to maintain it within the targeted points of the economy. These are accompanied by the improvement of the economic policies to make the economic policy more effective in helping the central bank take action against deflation. The increased money supply in an economy with less interest affects the money supply. The banks will run low on money to lend and have their reserves risk lowering further due to a high money supply in the market and uncontrolled demand. To reduce these effects, the central bank hikes the rates and mops out the excess liquidity from the market to aid in improving the economic situation. In addition, a high-interest rate reflects a decreased