Sunday, September 19, 2010
Can the Fed Offer a Reason to Cheer?
Is the deficit of optimism the reason why the US economy is still in recession? If the Fed could convince the American people that they were committed to economic expansion and monetary growth, economic morale would inevitably increase. Monetary policy has not been very expansionary. Supplying money did not result in consumer spending.Much of the money that consumers and businesses received did not go back into the economy but rather went into savings. If the Fed promised to increase the money supply until prices rose by 3% then consumers would begin to feel comfortable spending again. However, if no one believes in the Feds commitment to inflation, spending and employment will not go up. How much does our perception of the economy effect the actual trends in the economy?
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I dont know if people lack confidence that the fed is working to solve the current crisis. The fed has obviously tried to solve the current crisis by lowering interest rates and bailing out companies. I think that for most Americans the sign that will make them want to start spending again is a steady increase in the stock market. While the stock market may not be the best indicator of recovery for many Americans it is symbolic of overall economic growth.
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