Daily column – 1st September 2021

Economists waiting to know when tapering will start

Slashing through the nonsense and explaining popular personal financial terminology in layman’s terms.

Economists have been eagerly waiting for Jerome Powell to speak on tapering for weeks.

Tapering is the process of gradually reducing the length of your runs leading up to race day in order to keep your legs fresh. We may reasonably presume the economists mean something different until we see Powell wearing a pair of pumas.

Tapering refers to a progressive reduction in quantitative easing (QE), a method used by central banks to inject fresh money into the economy by acquiring long-term assets (bonds) from their member institutions, which include the retail banks we all use.

Lowering rate of interest, which is the Fed’s trademark approach in times of recession, is not the same as quantitative easing. When the Federal Reserve reduces the federal funds target rate, or interest rate, at which all member banks—including your bank—borrow money overnight, this is known as a rate cut. The Fed utilised this weapon in March 2020 when it cut the federal funds rate to near zero, giving it little clout currently.

The aim of quantitative easing, like reducing the federal funds rate, is to decrease interest rates and inject more capital into the market, which is beneficial for growth. Since June 2020, the Fed has been spending $120 billion per month buying bonds.

Many believe that the economy is booming and that the Fed doesn’t need to provide any further stimulus. Powell halfheartedly agreed on Friday, suggesting that tapering might begin in 2021.

Hurricane Ida on a rampage

Ida has knocked out power to 1 million homes and enterprises along the Gulf Coast since it made landfall as a Category 4 storm on Sunday. Massive blackouts have hit Southern Louisiana (seen above), and it might be weeks before electricity is restored.

What occurred was that the hurricane shattered the transmission infrastructure, which supplies the majority of the power along the coast. As of Monday, 2,000 miles of transmission lines owned by Entergy, a New Orleans-based energy company, were out of service, and the Department of Energy warned it might take up to three days to properly assess the damage and begin repairs.

Officials are concerned about more than simply phone batteries with a 1% capacity. In southern Louisiana and Mississippi, businesses, hospitals and homes are without electricity, which means they don’t have safe drinking water, functioning refrigerators, or the capacity to operate air conditioning in the oppressive 100-degree weather.

Residents who fled before the hurricane should remain put, according to Louisiana Governor John Bel Edwards, since the state’s emergency services can’t manage them right now.
Tulane University students began being evacuated to Houston Friday.

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