Chapter 8 Blog - Stabilization Policy

Article: Fed keep rates at record lows; upbeat on economy - http://www.google.com/hostednews/ap/article/ALeqM5g_S5cSA_kwYiaPl9e-FmlENxHSxwD9FC9TU81

Summary: The US Federal Reserve is deciding to keep interest rates steady. The Federal Reserve voted 9-1 to keep interest rates at a record low to help energize and stimulate the US' fragile economy. Thee Fed said that the job market is starting to pick up and that unemployment is stabilizing. They warned however to be very cautious as people are still experiencing sluggish income gains and tight credit which is hurting consumer spending. Commercial real estate is also fragile and bank lending is continuing to shrink.

Connections: Chapter 8 talks about stabilization. Whether its increasing, decreasing or keeping steady, interest rates are one way to stabilize an economy. In this period after the recession, stabilizing an economy is crucial if a country wants to return to post recession levels. The US, which took the worst of the recession, has a long way to go before it makes a full recovery, and the last thing they should do is hike interest rates. Once unemployment rates go down, and the economy becomes more stable, the Fed can once again start raising interest rates.

Reflations: I think that the Fed's decision to keep interest rates at record lows is necesarry for recovery. I don't think there is any other way around it. Keeping interest rates steady will encourage people to spend more money to stimulate the economy, and those who need moneey can borrow more easily thatn before. A commitment to keep interest rates low for an extended period gives consumers further confidence in the Fed's commitment to save the economy.