Thursday, November 4, 2010
Fed Fires $600 Billion Stimulus Shot
The Federal Reserve, in a dramatic effort to rev up a "disappointingly slow" economic recovery, said it will buy $600 billion of U.S. government bonds over the next eight months to drive down interest rates and encourage more borrowing and growth.
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The recovery is chugging along to slow. People are afraid of a "double-dip" effect--this is when we are not yet out of a recession before another recession hits.
ReplyDeleteI think this is a smart move by the Fed to try to stimulate a quicker recovery. And if this doesn't work, then we will have to do more:
"The Fed left open the possibility of doing more if growth and inflation don't perk up in the months ahead. The $75 billion a month in new purchases of Treasury debt come on top of $35 billion a month the Fed is expected to spend to replace mortgage bonds in its portfolio that are being retired."
I think the Fed is taking the proper course of action.
See the nytimes article titled "Markets at a 2 yr high a day after the Fed's decision"
ReplyDeletehttp://www.nytimes.com/2010/11/05/business/05market.html?_r=1&ref=business
I agree that the recovery was painfully slow but nevertheless still is growing and that is definitely better than having a declining GDP. My concern is this would cause a higher inflation due to mass amount of printing.
ReplyDelete"Critics say a weaker dollar isn't in U.S. interests, and that a swift decline in the value of the currency could drive up U.S. interest rates. Fed officials have seen the dollar's drop to date as being orderly and supportive of growth."
In this case, driving up the U.S. interest rates will actually decrease the level of investment, how will this help America recover quickly with lower investment while having a deficit budget?