The Fed’s Latest Plan to Kickstart the Economy

Written by: Mike Valles

Just about everyone is getting tired of the economic problems that our nation is seeing today. Billions of dollars have been poured into “economic recovery” plans, but little has come out of it in the way of perceived progress. The Fed’s recent announcement of a plan to kickstart the economy brought some hope to the markets.

Up until recently, the Federal Reserve has not taken a lot of new action to stem the problem, but they have kept the interest rates historically low. This has made available a lot more money to banks, but borrowers are few and loans are considerably harder to get.

According to FoxBusiness.com, Ben Bernanke, the Federal Reserve Chairman, told Congress at a recent meeting that they now are ready to put a plan into operation to “kickstart the economy.” This comment was in response to the fact that the last quarter had seen little economic progress; and that there were only a few gains in employment – just 96,000 new jobs in the last quarter, but 368,000 people had completely left the workforce.

Bernanke said that their plan will start by spending $40 billion each month to buy mortgage-backed securities. It will also continue to buy bonds until the job market becomes much more stable, says CBSNews.com.

The Fed also expressed that they intend to keep short-term interest rates the same for some time to come. They expect to keep them low through mid-2015.

After this announcement was made, there was immediate evidence that the news was a relief to some. The stock market almost jumped immediately by 105 points, and then it dropped back down to a gain of 35 points for the day.

The Federal Reserve hopes to be able to spur the job market in particular. The belief is that when more jobs are created, then there are more people to pay taxes.

The DailyFinance.com reported that even the announcement of the strategy of the plan to kickstart the economy seemed to be working. The stocks of the companies that build homes rose as much as 86 cents for D.R.Horton Inc., and KB Home rose 39 cents. This may also have been in response to the announcement by the National Association of Realtors that home sales had risen in August to the highest level seen in two years.

A big problem with this move, reports FoxBusiness, is that it will hurt people who are living on a fixed income – the seniors. Many seniors have money invested in products that will yield a fixed income, such as bonds. When interest rates change, so does the return on bonds.

Some people do not believe that the steps taken by the Feds will actually make much of a difference. One such individual is Mark Williams, who was previously a Fed examiner and is currently teaching banking at Boston University. He says that “It’s a little too late for the Federal Reserve to try and jumpstart the economy. Even if QE III comes into play it’s not going to have any impact for two quarters.”

Bernanke also said that if it does not work as hoped, that it will keep on working to provide a solution. Other countries are also working to find answers to the global economic problems.

 


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The Fed’s Latest Plan to Kickstart the Economy

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