FDM
ECONOMIC WATCH
fdmonline.com
Kim Kennedy
Economics editor
Will economic
stimulus and
lower rates help?
●
Since the start of 2008, the news
has been filled with interest rate
reductions, stimulus packages and
other initiatives designed to jump-start
the economy and help the housing market recover. If these developments do
have a positive impact on the economy
and housing, the furniture industry
would surely benefit as well. Many economists, however, are not convinced that
the combined effects of stimulus and
cheaper money will be able to prevent a
recession. It’s therefore worth a look at
these packages to assess their ability to
turn around the current situation.
Stimulus
initiatives could
take way too long
to be felt in the
economy, and
may stimulate
inflation.
Background
What brought about the decision to
lower rates and implement a stimulus
package? The initial action came as a
result of sharp declines in global stock
markets, which feared the worldwide
effects of a U.S. recession. Shortly after
those declines, the nation’s Gross Domestic Product (GDP) report revealed
that the economy grew just 0.6 percent
in the final quarter of 2007, confirming that the economy was teetering on
the brink of recession. The December
2007 employment report also showed
that job growth faltered over the
month, adding just 18,000 jobs to the
economy and suggesting that employers were becoming more cautious
about the future.
At the same time, however, inflation was becoming a concern once
again. In the December-January pe-
Target federal funds rate
7.0
6.0
5.0
4.0
3.0
2.0
1.0
●
0.0
2000
2001
2002
2003
2004
2005
2006
2007 2008
Source: Federal Reserve
The Federal Reserve took an aggressive stance against the slowing economy, lowering interest rates
by three-quarters of a percent followed by a half-point reduction that brought the Federal Funds
Rate down to only 3 percent.
