The Fed pumping money in to economy

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The Fed announced Wednesday that they will pump $600 billion in to the U.S. economy in an effort to speed up the pace of the recovery. The way they are doing this is by printing money and exchanging it with the banks for the U.S. government bonds that the banks hold. The idea is that the banks will then turn around and loan this money to businesses and people which will allow companies to invest, hire and grow and will enable people to make purchases that they need but do not currently have the credit for.

The idea makes sense. Whether or not it will work remains to be seen. There are some concerns about this plan because the Fed has already pumped so much money in to the economy over the last two years. If there is too much money out there in the economy then the value of the USD may drop. This also increases the chance for inflation to take hold. If inflation increases too much then that alone will hurt the economy. There is also concern that this plan simply will not be enough to make any meaningful impact on the economy.

Right now, interest rates are very low. This makes it attractive for businesses and people to borrow from the bank. The problem is that the banks are reluctant to provide loans unless the borrower has amazing credit. This puts a strain on many businesses because they need credit in order to grow their business and hire new staff. This is one of the main problems that are behind the high unemployment rate. Hopefully the Fed’s plan will only help the economy, but if not then the government will need to find other ways to get banks to lend money again.