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 choices being considered. Late Tuesday is when the decision can be made, although trading has been slow.
Possible first option for Fed
Maintaining or dropping interest rates is the first Federal Reserve option. The interest rates set by the fed are used to determine rates for everything from mortgages to money loans. Credit would be encouraged with the lowest rates in history. The risk, however, is that deflation could stifle whichever gains might be made.
Second option for the Fed
It is possible Fed might just purchase government debt as an option. A personnel loans could possibly 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. The risk, though, is that this would not stimulate any borrowing.
Federal Reserve’s 3rd option
The riskiest move, and the one with one of the most payoffs, would be for the Fed to start purchasing securities again. The Federal Reserve in 2009 bought $1 trillion from Fannie and Freddie in securities. Even though lending was encouraged, Fannie and Freddie still aren’t doing well. When getting large things, borrowing would be guaranteed making it possible for businesses to be lent more money. The risk, though, is that this move would be seen as a verification that the economy is in very bad shape, driving investors out of even the best pay day loan opportunities.
