Sunday, August 15, 2010

Fed mulls possible actions to give the economy a boost

The Federal Reserve, the board that sets overnight loan rates for banks, is mulling possible actions to help the economy grow. Risky stimulus moves or maintaining course are the two possibilities being considered. Late Tuesday is when the decision could be made, although trading has been slow.

Fed option one

The first option for the Federal Reserve is to drop or maintain interest rates. The Federal Reserve determines all of the interest made on online personal loans. Credit would be encouraged with the lowest rates in history. The risk, nevertheless, is that deflation could stifle whichever gains could be made.

Next option the Federal Reserve is looking into

Purchasing government debt is another possible option. A personal loan might be given to the government. The mortgage investments that created this income might be turned around to purchase government debt, driving long-term interest rates down. No borrowing would be stimulated with this plan.

Federal Reserve’s 3rd option

It is also possible that the Fed could purchase securities once again. In 2009, the Fed bought more than $1 trillion in securities from Fannie Mae and Freddie Mac. Though this helped encourage lending, Fannie and Freddie are nevertheless in trouble. Any large purchase would help guarantee any of this debt and (theoretically) increase the amount of money lent out by companies. The only problem is the Fed would be admitting the economy is really bad with this move, meaning investors wouldn’t even want payday loans anymore.



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