The Federal Reserve Chairman Ben Bernanke said that yesterday that they will keep interest rates low until unemployment is 6.5% or below and inflation remains below 2.5%. Why does this matter?
First, the Fed does not clearly state what they will do or for how long or until what numbers. I like the increased transparency. It clearly shows in terms we (non-professional economists) can understand. In other words, the people printing money are telling us how cheap that money is, right now it's basically face value, and how long it will stay that cheap. When interest rates go up money gets more expensive.
Second, if you are in the market for a house, prices probably won't rise much until unemployment busts through 6.5%. Okay, maybe I'm the only person reading this blog interested in buying a house. The same stands for buying just about anything else. Car loans will stay cheap. Student loans hopefully should stay cheap but with some loans at 8% now that is not the case.
Third, it means that the US Congress has to do something. Although, maybe this whole debacle has come down to John Boehner and Barack Obama arguing ideologies out over the kitchen table. Great. People we elect to get stuff done, don't get much done. That's a good radio listen about the filibuster in the Senate. I had no idea...
Fourth, things are getting better! People will get jobs! We do have abundance in this country. It is easy to forget that. We have so much food and clothing and shelter. We are so fortunate. Just ask someone from Africa or Asia to describe the differences.
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