Helping The Economy With The Federal Reserve

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Helping the economy may be hard, although the Federal Reserve is trying to find a way to do so. These changes could be as simple as maintaining course, or as aggressive as risky stimulus moves. Markets around the world have been trading very slowly, waiting for the Federal Reserve to announce its decision, which is expected late Tuesday.

Fed Reserve option one

Sustaining or dropping interest rates is the first and most typical option that the Federal Reserve has. The Federal Reserve determines all of the interest rates made on loans like mortgages and online loans. As the rates are at an historic low, the Federal Reserve would be stimulating the actual use of credit. The risk, however, is that deflation could stifle no matter what gains might be made.

Federal Reserve’s second option

The second option the Fed has in trying to stimulate the economy is purchasing government debt. A personel loans could be given to the government.There were mortgage investments that made this income which if they could be turned around to buy government debt, might make long-term interest rates go down. Through this, there would be no borrowing encouraged, which another risk.

Third Federal Reserve option

It is also possible the Federal Reserve could purchase securities once again. This would be a dangerous move by the Fed, but it would have larger payoffs. The Federal Reserve in 2009 bought $1 trillion from Fannie and Freddie in securities. Fannie and Freddie still aren’t doing well with all this help that did encourage lending. When buying large things, borrowing would be guaranteed making it possible for companies to be lent more money. Even payday loans will die off with investors pulling all their money if the Fed did this admitting the economy really is in bad shape.

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