Advantage Newsletter - January 2009

Economic Barometer—What to Keep an Eye On

With the inauguration of our new President comes hope for strengthening the economy and restoring confidence across the nation. There has been a lot of talk about the new stimulus package and the potential impact on the future of the economy.

What can be said is that the new government is forthright about its approach to implement a compelling strategy that will bring about a dramatic change in the economy. There are already signs of positive change and progress. The Federal Reserve’s recent motion to lower interest rates to nearly zero triggered the reduction in mortgage rates to record low levels. These low mortgage rates allow more borrowers to purchase and refinance homes, and these actions will help to facilitate the stabilization of the housing market and stimulate economic growth.

As more stimulus actions are carried out, economic indicators will start to improve and provide leverage for full-scale recovery. The Fed meets regularly to discuss strategies and tactics for enhancing the financial system that controls certain conditions in the economy. A two-day meeting was held on January 27 and 28, and here are the noteworthy takeaways:

1. The Fed will continue to use unconventional methods to revive financial markets and lift the economy. One of those methods is keeping the key interest rate at a historically low level—between zero and 0.25 percent, which the Fed signaled rates could stay within this range for an extended period of time.
   
   
2. A heavy focus will remain on lowering borrowing costs for consumers and businesses, in addition to focusing on credit easing policies that rely on lending or the purchase of securities.
   
   
3. The Fed is prepared to buy greater amounts of mortgage-related debt in a program that has already cut interest rates on home loans to an unprecedented level.
   
   
4. Several programs are in progress, such as programs to buy commercial mortgage-backed securities and shore up banks and investment firms.
   
   
5. Preparations have been made for the Fed to buy long-term Treasury securities, which will aid in fixing financial markets and reversing the recession.
   
   
6. Policy actions will continue to be dramatic in order to spur lending, facilitate consumer spending, and recuperate the economy.
   
   

Improved economic conditions will instill faith in our government’s ability to stabilize the economy and restore the confidence of the American public.