With recession that is already taking toll on most Americans, Fed in their upcoming meeting is expected to keep Fed. Funds Rates unchanged.
Two day meeting which starts on Tuesday will offer an insight on how Fed will further help struggling economy. The three major crises: housing, credit and financial markets are still not at the level where many banks can open their credit lines and start lending again.
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While Fed is pledging to do what they can to help economy, President Barack Obama and Congress are preparing an $825 billion package of increased government spending cuts and tax cuts.
Economists are currently divided on whether the Fed will announce new actions Wednesday to deal with the crises.
There are two programs in consideration. First program which is expected to start in February is to provide $200 billion to spur auto, student, credit card and small business loans. Fed will simply buy securities backed by those types of consumer that which will immediately lead to lower rates!
If this program is successful, it will also provide additional funds for other types of securities such as commercial mortgages and current mortgages from fixed to adjustable loans.
With any new solution that may come up from Fed or even Congress, more and more tax payer’s money is put at risk if nothing will work.
The nation's unemployment rate bolted to a 16-year high of 7.2 percent in December and could hit 10 percent or higher at the end of this year or early next year. 2.6 million jobs were lost last year.
Consumers have also cut spending which led to many bankruptcies for major retailers and there is no stopping how many more retailers will go out of business this year, thus eliminating more jobs.
With expected Fed decision, mortgage rates will react and will go even lower very soon. It is also expected that Fed will continue to buy a majority of commercial paper from Fannie and Freddie Mac, thus releasing them of massive obligations of bad debt.
This way both agencies can continue making loans and provide lower interest rates to consumers.
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