The Fed to the rescue?
Date posted: November 5, 2010
The economy is still not improving the way most people would like. Consequently, the Federal Reserve recently announced a new program called quantitative easing to stimulate economic growth. N.C. State University economist Mike Walden explains.
“What it simply means is the Federal Reserve will print money. They have the power to do that — make up money, if you will. They will use that money to go out and buy assets things like Treasury securities. And they hope to accomplish two things by this: One, they hope to push long-term interest rates down — like interest rates on home mortgages — so that will stimulate the housing market. And secondly they hope to boost the value of assets. And one of the big problems in this recession has been that people lost a lot of money not just in the stock market but in terms of their housing wealth, and that has been a big factor behind the very frugalness that consumers have been displaying.
“Now the Federal Reserve did this before. They did it two years ago. In fact they did it to the tune of $1 trillion. Most people don’t think this time around it will be that big. And economists are divided on how successful this program will be. They think it will help. They think it will push long-term interest rates down maybe by a quarter percentage point. They think it will boost some wealth. In fact, we have already seen that in the stock market. But they don’t — they don’t — think this is a solution, long term, to our economic problems.”
Category: Economic Perspective