The Federal Government is Complacent in the Battle to Improve the American Economy

The American economy isn't sailing forward at full speed nor is it falling back on its heels. Instead it is in a lukewarm middle and many economists and industry leaders are concerned what this stagnation means. As they sit and wait the Federal Government makes decisions on national interest rates that could have a profound affect on the national economy.

Interest rates and the economy have always been tied together. The Federal Government may raise these interest rates to slow down the economy or lower them to increase the economy. As a general rule the lower the cost of borrowing money the more companies are willing to take loans to purchase new equipment, expand operations and hire more people.

Despite a major decline in the mortgage lending industry and high volatility of the market the Federal Government has kept interest rates the same. Steven Woods from Insight Economics stated, "The Fed threw the markets a bone, commenting on recent market volatility and tighter credit conditions." In other words the Federal Government didn't want to get their hands dirty just yet.

The bouncing stock markets have worried some Federal economists that lowering interest rates to speed up lending would add to this volatility. The Federal Government would prefer to sit back and wait until everything has calmed down before making any major changes. However, even though the mortgage industry is satisfied not all sectors of the U.S.'s business markets are happy.

The mortgage industry prefers to keep things unchanged at this point because many institutions that have invested heavily in the sub-prime markets are being threatened by potential bankruptcy. To decrease interest rates would bring more business but it would also reduce the overall profit on each loan. These companies cannot afford to lose income.

Tom Gallagher, a Fed analyst with ISI Group, states "the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy." Even though the U.S. is not growing at the same pace as many Asian nations it is still growing.

Complacency In the market, the desire for a moderated growth of 1.5%, and the fear of the Federal Government to make economic decisions could have an impact on long-term viability. The Federal Government feels that the economy is more at risk of inflation instead of recession. Instead of attempting to get to the optimal growth rate of 3.5%, our politicians have decided that half of that is good enough. This mentality and policy hardly makes sense when China is bound to be the world's largest economy by 2015.