The Federal Reserve is making big strides in its efforts to support the economy, even if it is having trouble getting the job done.
The central bank’s first-quarter economic growth slowed from its previous pace of 2.5% and was flat in Q2.
Inflation rose 0.5 percentage points to a record 5.6%.
It has been hard to gauge how well the Fed’s policy of buying trillions of dollars of Treasuries and mortgage-backed securities has helped to stabilize the economy.
But there’s little doubt that the Fed has made some progress, as evidenced by its first-ever rate hike in September.
The central banks rate decision has also helped to keep inflation in check.
With inflation rising and wages stagnant, a slowdown in wage growth could lead to a sharper squeeze on the dollar.
There’s a lot at stake.
So far this year, the Fed said it has pumped $4.6 trillion into its balance sheet, including a $1.6 billion injection to the U.S. treasury.
At the same time, inflation has fallen to a 3-year low of 2%.
The Fed has also been helping the Treasury with a $40 billion mortgage-bond swap program.
Some economists say the Fed should also increase the rate of interest it pays to banks.
That would help to keep the economy from slipping into recession, especially since the Fed already has made it a priority to keep borrowing costs low.
The Fed, which is the federal agency that controls interest rates, has also begun to slow the pace of bond purchases.
Last week, it said it would buy $4 billion of bonds to help boost its balance sheets.
And its decision to raise interest rates to a new record high last week sparked speculation that the central bank was considering the creation of a “quantitative easing” program to help prop up the economy through the economic downturn.
Since its inception in 1913, the Federal Reserve has spent about $6 trillion.
Its balance sheet is $4 trillion.
In a speech Tuesday, Fed Chairman Ben Bernanke said the Fed would be “revolving out” of its bond purchases “until we see signs of recovery.”
Bernanke said he had been working with the Treasury Department to craft a plan for the next round of stimulus.
It is expected to be unveiled in early September.
Read more from Business Insider:The Fed is making major progress in its effort to support GDP, even as inflation has been stuck in the 1% range.
During the first three months of the year, consumer spending grew at an annualized rate of 2% or better.
While growth in consumer spending was robust in Q1, it slipped a bit during Q2 due to the Great Recession and the effects of Hurricane Harvey.
This is good news for consumers and businesses because the economy is starting to show signs of slowing.
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