The government may acutally be leaving the free market

Well…maybe not, but it looks like the Federal Reserve may be stopping any new efforts to “revive the economy” at its meeting this week. According to economists, Chairman Ben Bernanke and his colleagues don’t want to “overdo” the stimulus medicine and that “stimulating the economy” through the Fed may fan the flames of inflation later, so the Fed is expected not to make any new moves this week.

Over the past year, the Fed has done everything it could do to try to help stimulate the economy including putting $1.2 trillion into the economy in an attempt to lower interest rates. The lower interest rates were meant to get consumer spending up.

The Fed is also expected to hold the key lending rate to banks at the record low of near zero percent. It has said in the past that it will keep the rate low for “an extended period.” Economists believe that the rate will stay between 0 and 25% until sometime next year.

It is looking more and more like some of the things that the government has done to help the economy has had a bit of an effect…after all it was just in January when the first stimulus was passed and took effect. Since then, home prices have stopped declining as rapidly and are actually starting to level out in a lot of places, and in the last month, consumer spending has increased and the jobless rate has also started to slow down. Some analysts think that the economy is declining, but at a much lesser rate than the final quarter of 2008. The April-June quarter is between a 1 and 3% decrease, while the final quarter of 2008 was 6.3%.

Of course, some of the problem is that we will not know whether the economy would have recovered as quickly without the government interfering as much. A lot of the government agencies we currently have in place were put in place to keep a depression like the one seen in 1929 from happening again.

A problem that is happening now is that mortgage rates have started to increase again, and while eventually mortgage rates need to go back up, right now the housing market is still hurting and home buyers are still a bit scarce. To help this out, the Fed may decide to start buying more mortgage backed securities as well as government debt to help drive the rates of mortgages down.

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