Fed News Friday: Federal Reserve To Hold Interest Rates Down
July 15th, 2011
The Federal Reserve decided this week that they will not raise borrowing rates until at least June 2012 in an effort to stimulate the economy without going on another bond-buying spree. With this latest policy move, the Fed plans on having the longest time period without a rate increase since World War II, a time when the nation was recovering from a war-time economy and when the Marshall Plan was enacted to save Western Europe.
Thankfully, this program will not increase fears of monetary inflation, which became a disappointing side-effect from the two rounds of quantitative easing the Fed enacted over the past three years. In fact, 2012 is expected to see a decrease of federal stimulus money, as many “stimulus” programs are set to expire, withdrawing nearly $300 billion of taxpayer money from the markets. While this should be greeted warmly by the few fiscal hawks that are left in Washington, some economists are claiming that this would, in fact, result in slower economic growth, which is why the Fed doesn’t want to raise borrowing rates at this time.
The last time the Fed had a long streak of low interest rates was from 1937 to 1947, where the borrowing rate was at 1% in the midst of the Great Depression and World War II. This was also a time of huge deficits and an unacceptable growth of Federal power, which many believe was the reason why the economy was in the gutter for nearly twelve years. Our economy today is not in a depression thank goodness, but it’s not great either. The claims that decreased Federal money in the economy would harm short-term growth is false; stimulus money merely delayed the bust that should’ve come naturally, and an increasing number of economists are coming to the realization that the economy could’ve been on the road to a strong recovery had the government not intervened. As a result, the Fed is trying to correct a problem caused not by the economy, but by big government, and is yet another sign of the “kick the can down the road” syndrome that has plagued Washington for decades.
