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Can the Fed save the economy from a recession in 2008?


The stock market is rapidly deteriorating and most economists are now predicting a recession, what can the Fed do?

Every news article you read seems to indicate that the U.S. economy will fall into an economic recession in 2008. The Federal Reserve will be announcing their decision with cutting the fed funds rate later this month as they try to balance monetary policy. The real question is will the Fed be able to prevent the economy from heading into a recession, and what could they do to help this. Ben Bernanke and the fed have been closely watching the economic reports such as the employment report, retail sales, housing reports from the months of November and December progressively decline.  All signs indicate that the economy is slowing down and the Fed will have to focus away from balancing inflation to jump starting the economy and the credit markets. The rapid decline in real estate values and the mortgage meltdown have put the Fed behind the eight ball. They will most likely need to cut the Fed funds rate from 4.25% to 3.75% later this month, and many economist believe the rate will be under 3% later in the year as the Fed tries to play catch up with the economy. Dropping the Fed funds rate should help to bring back the housing market, but this will take a minimum of 12-18 months to truly begin positive growth. The major danger for the Fed is that the further they lower the Fed funds rate, the faster the dollar will probably decline versus foreign currency, and this can have a negative impact on other industries such as the auto market.


1-13-2008 ? LoanNetwork.com





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