The Federal Reserve has spelled out what it’s going to do to try to juice up the economy. Yesterday, Fed Chairman Ben Bernanke announced a new strategy that ties the Fed’s actions to unemployment and inflation rates.
Until now, the Fed’s strategy has been open-ended — it just pumped money into the economy, hoping things got better.
Now, Fed Chairman Bernanke says, the Fed has a more specific game plan. It’ll continue to buy Treasuries and bonds to stimulate the economy until unemployment falls to at least 6.5 percent — and as long as inflation stays low.
Part of the idea is to help consumers plan, according to Morris Davis, a former Fed economist who is now at the University of Wisconsin.
“It gives them some way of gauging when they think their interest rates on their credit cards might start to rise,” he explains. “If they were thinking about refying, it gives them a time frame for when they think interest rates might stay low.”
Davis says the new Fed strategy will also help businesses plan. He says if they know money will be cheap for a while, they might start borrowing. And, yes, hiring.