After much debate, the US Federal Reserve has decided to provide a stimulus package of $600 billion to boost the sagging economy. According to The Globe and Mail, the Federal Reserve’s policy committee voted in favor of the unprecedented stimulus package, which will be made available over the next seven months.
The Fed felt that the need of the hour is a massive stimulus package that could pump life into a depressed economy. Post recession, the American economy is recovering far too slowly, failing to bring the rate of unemployment below 9%. There is also the risk of deflation brought about by falling prices, which could again put the economy on a downward spiral. The high rate of unemployment has also forced Americans to tighten their purse strings. Apart from this, there is a lack of investment in non-residential buildings, the housing market remains depressed and the home equity loan market also remains slow.
The Fed kept interest rates low to encourage consumer spending and give businesses the confidence to invest. It also expects the dollar to remain weak, which is good news for exporters in the US.
There are some downsides to the Fed’s low interest rate policy though. Investors will flock to commodities and stocks, which may create a bubble in those markets. But the Fed has chosen to take the bold step and do something instead of sitting back and waiting for the economy to get back on its feet.
