What will The Fed do next for the economy?

The Department of Labor announced this morning that consumer prices fell in November by the largest percentage, 1.7%, in the 61 years that records have been kept, much of the decline being attributed to energy prices that have plunged drastically.

With inflation being rather minimal at this point (according to an AP story, the 1.7% decline in consumer prices was larger than economist’s forecast of a 1.2% drop) there is some good news on the financial horizon because, with inflation being rather low, the Federal Reserve has a lot of leverage and can pump money into the economy because they don’t have to worry (yet?) about fueling inflation. And that’s exactly what they’re doing; having the central bank print more money and then pumping it back into the economy, much like Japan did years ago successfully.

All of this is a more complex way to say that the Fed will probably reduce federal funds rate 50 basis points to 1/2% in the next few days.

An Important Bill is Passed

House Democrats wanted to cut student loan interest rates… the administration “declared its opposition” to a cut. The (Democratically-controlled) House, by and large, ignored the White House and overwhelmingly approved the bill yesterday by a vote of 356 to 71… a vote which saw more than a few republicans swinging sides… a swing nearly 130 votes strong. Having said that, don't let the final tally deceive you… most republicans opposed the bill… vehemently opposed the bill… and voted for it simply because they didn’t want to be painted as opposing student aid or opposing anything related to education.

The bill, which lost by a scant 2 votes a year ago, aims to cut interest rates on college loans and thus create a plan that could potentially save students $2,300 over the life of a loan. While that in and of itself is good news, it’s unfortunate that the reduction in rates will be phased-in and won’t take full effect until 2011. Regardless, even a phased-in reduction will help some students considerably.

I’m not posting this to harangue about how important education is… most everyone knows that education is a fundamental building block of society and is relatively important in the creation of an informed citizenry. Keep in mind that I am not saying that those without an education are not important and do not contribute to society, they do… a lot… it’s just my personal belief is that education is important.

The reason I’m posting this is because it is an important bill that could have a significant impact on a very large segment of the population. Furthermore, it could also have an impact on a segment of the population that is constrained from furthering their education by the idea of having to pay off their oversized loans. But with a significant cut in interest rates, the dream of getting an education just got easier for a lot of people… and that is something that I believe in.

I was lucky; when I was working on my undergrad, I was on a Forensics scholarship and didn’t have to take out any student loans. Ditto for my Masters degree, my employers paid for it, so I’ve never had to rely on student loans. My wife on the other hand has… her undergrad, her post-graduate certificate and now her Masters, she’s had to use student loans, so I know the anxiety, stress and worry that they bring… and cutting the interest rates is an enormous step in the right direction.

Let’s hope republicans and/or this administration don’t do anything to screw it up…