Central Bank to Weigh Further Stimulus Measures


Central Bank to Weigh Further Stimulus Measures

Tags: economy, central, growth, mortgage, federal, reserve, action, policymakers, nation's, whether

Policymakers at the U.S. Federal Reserve, the nation's central bank, may be set to take new action to spur the nation's sluggish economy as they meet on Wednesday and Thursday to decide whether to adopt new policies to rally growth.

The world's largest economic, still struggling to recover from the recession of 2008, the nation's worst since the Great Depression, advanced just 1.7 percent in the April-to-June period compared to the early part of 2012. Job growth has languished, with the Bureau of Labor Statistics reporting last week that relatively few jobs were added in August — only 96,000. More than 12-million people are out of work, and last month 368,000 Americans left the workforce, abandoning their search for new jobs.

According to economics professor Steve Fazzari of Washington University in St. Louis, the economy is having a hard time advancing from the recession.

"We’re still stagnating. We’re not creating enough jobs in the economy to even keep up with population growth. So, yes, we are growing, rather than shrinking ... but we’re not really doing any kind of catch-up here," he said. "We lost so many jobs in 2008 and 2009, and we’re just rumbling along the bottom, as far I’m concerned."

The central bank has already bought $3 trillion worth of various types of securities during the last four years to put more money into the economy. Policymakers hoped that, in turn, banks across the country would then make more loans to businesses to hire more workers, and to consumers to spend more on products they need or want.

But the economy is still lagging, and Federal Reserve Chairman Ben Bernanke said last month that the meager job growth is of particular concern, suggesting that the Fed could take new action to boost the economy.

But the type and scope of any central bank action is unknown. The central bank could buy more bonds — perhaps securities backed by home loans — or extend the period for keeping its benchmark interest rate at zero to a quarter of 1 percent beyond the late 2014 date it has already set.

In light of last week's employment report, Fazzari says he expects the central bank to seek to push already low long-term interest rates even lower.

Finance professor Rebel Cole of DePaul University in Chicago says the weak job growth indicates a better than 50-50 chance that the Federal Reserve will adopt new economic policies. But whether the central bank's buying of home-loan securities would boost the labor market, he says, remains uncertain.

“The problem with that is that I don’t think that mortgage rates are too high," he said. "I don’t see how that’s really going to help the job market.”

Moreover, Cole says Americans looking to buy a home face stringent reviews of their personal finances, making home-buying even more difficult.

“Most people who can refinance have refinanced," he said. "The problem in the housing market is not that people can’t afford the mortgage rates, but they can’t qualify for the mortgage because 25 percent are underwater, meaning that the borrower owes more on the mortgage than the home is worth. Underwriting of mortgages has tightened considerably in the last couple years. It’s very, very difficult to qualify for a mortgage unless you have absolutely sterling credit.”

Whether Federal Reserve policymakers decide to adopt new policies — or take no action — is sure to reverberate across the U.S. political landscape, where the state of economy has been the central issue this year's presidential campaigns. President Barack Obama, a Democrat, and his Republican challenger, Mitt Romney, trade barbs almost daily about who can best push the economy ahead at a much faster pace.

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