Securing The Credit Supply Is Not On Federal Reserve Calendar Just Yet

There are currently no plans at the Federal Reserve to tighten the credit supply of the nation yet. The Federal Reserve has certain controls over the amount of accessible lending capital in the financial system. Fear of inflation is causing several to think the Fed should reign in the supply of credit. However, the financial institution maintains the economy is too fragile to do that just yet.

Not ready just yet, Fed claims

Prices of customer goods, such as food and gasoline, have begun increasing recently, causing many to worry about economic inflation. Whether or not the Federal Reserve should start restricting credit has been brought up by several due to this. Members of the Fed, however, are convinced the overall economy is too shaky to tighten the credit supply, according to MSNBC. Fed Vice Chair Janet Yellen was at Yale University speaking recently where she said that the central bank wouldn’t change the policy of keeping rates of interest close to zero just yet.

Not enough jobs still

Part of the Fed’s job is to control the supply of credit the U.S. banking system has. Even the rates of interest charged are affected by this control. When a recession happens, the Fed decides to lend to banks. In order to stimulate lending, these loans are close to zero percent interest. Those banks can lend that capital to customers, as mortgages or personal loans, or to other financial institutions. There are, of course, many other facets to the Federal Reserve’s operations, however credit supply is a key function. The amount of available capital can also be dropped by the Fed. This would only take place if it thought the price inflation was too much. The price of commodities like oil and food is increasing, which means that $1 doesn’t go as far.

Banks also have Consumer Financial Protection Bureau to worry about

After the central bank feels like the economy is doing good again, the Federal Reserve will likely start restricting the supply of credit meaning there should be an increase in loan rates of interest. The new CFPB rules can be instated soon as well. Reuters reports, that in July the bureau will start to work full time while it is anticipated that by January 2012 there could be new regulations set in place, according to spokesperson Elizabeth Warren. The amount that the Consumer Financial Protection Bureau can do hasn’t been decided in Congress just yet. Still, there will soon be more regulation to deal with.

Articles cited

MSNBC
msnbc.msn.com/id/42520140/ns/business-eye_on_the_economy/

CNBC
cnbc.com/id/42532601

Reuters
reuters.com/article/2011/04/11/us-cfpb-warren-idUSTRE73A5FQ20110411

Filed under Federal Reserve by  #