New Fed policies will try to lower home mortgage rates

John Dimsdale Sep 20, 2011
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New Fed policies will try to lower home mortgage rates

John Dimsdale Sep 20, 2011
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Jeremy Hobson: The Federal Reserve kicks off a meeting today in Washington, and we’re in for another debate over which is a bigger concern for the U.S. economy — inflation or unemployment. The Fed is expected to choose unemployment, and announce it’s shifting some of its investments in an effort to stimulate the economy.

Here’s our Washington bureau chief John Dimsdale.


John Dimsdale: The Fed will be discussing a new “twist” in monetary policy that will lower interest rates on big loans, like home mortgages or construction projects.

Low interest rates, in theory, would spark more economic activity. But call it the “twist” or the fox trot, or whatever you want — ING bank senior economist James Knightley says interest rates are already low and no one is dancing. The problem is hesitant banks are requiring big down payments before they lend.

James Knightley: And also with consumer confidence being so weak, households are also fairly reluctant to get into more debt. So I’m just a little bit cautious about how effective and how stimulative this new policy is likely to be.

Operation Twist may be inconsequential, but also harmless, he says. So at least the Fed will look like it’s trying to do something. In the end, that may be its biggest benefit.

In Washington, I’m John Dimsdale for Marketplace.

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