Tectonic forces are pulling the U.S. economy in opposing directions: Republicans, who won the House and a majority of state governor seats in November elections, promise to cut spending and taxes and rein in government excess. But following the Republican victory, the Federal Reserve is launching a fresh round of its own brand of stimulus, announcing a plan to purchase $600 billion in Treasury securities. Will the forces of Congressional fiscal policy and Fed monetary policy remedy the sluggish economy, or will they stress it beyond repair?
The Fed purchase is intended to raise the price of Treasuries, which should lower long-term interest rates and provide banks with cash to lend to their customers. The expectation is that lower long-term rates will encourage home refi’s and boost corporate investments and expansion, which, it is hoped, will created new jobs. But there is no guarantee that banks will lend from any cash infusion resulting from the Fed purchase. Banks could choose, instead, to increase their cash reserves against expected defaults. And U.S. corporations are not showing any signs of going on a hiring spree—instead, they are sitting on record amounts of cash. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
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