Fed Economist: Spend Stimulus Checks
Bank of Boston VP predicts slowdown will be 'shallow and brief'
That was just part of the message delivered to attendees of the Nichols College annual faculty dinner Thursday evening by Jane Sneddon Little, Federal Reserve Bank of Boston vice president and economist.
Little recounted the causes of the current credit meltdown and difficult economic period: an overinflated housing market, turmoil in the financial markets and the impact that the resulting lack of credit availability and inflation have had on employment and consumer spending.
She also discussed her thoughts on why the current economic slowdown is likely to be "relatively shallow and brief" compared to recessions of the last 25 years and measures that could be taken to avoid similar credit crash slowdowns in the future.
Eye On Inflation
Little, who has worked at the Boston Fed since 1966, said that with oil and food prices sharply spiking, people "have less to spend on non-oil, non-food items and real consumption declines. Consumer sentiment is down to its lowest level since the early 90s."
However, Little said the Fed is expecting a slowdown in inflation, and coupled with spending encouraged by federal stimulus checks an increase in consumer spending could help the economy turn back toward growth before the end of the year.
But in order to avoid similar situations in the future, Little suggested a range of regulations that could help the economy from falling victim to "irrational exuberance."
She said perhaps home loan originators should be required to keep 10 percent of the mortgages they write on their balance sheets, rather than being allowed to sell them off entirely. She also said central banks should have "some regulatory authority over any financial institution that has access to its credit facilities."
The Fed has also been much more aggressive in trying to stave off a recession than it has been in the past, when it has waited until the economy was in deep decline before cutting federal funds rates or adjusting fiscal policy, she said.
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