Things To Watch For In 2009
A number of items bear watching as the new year dawns and the incoming administration takes office. One of the first things on their agenda will be the passage of a new economic stimulus package.
The recent holiday shopping season saw a big drop off in consumer spending which has many retailers reeling. The last stimulus package only saw a few months of relief in consumer spending levels, many economist will be watching carefully on the size and scope of the proposed new package.
The unemployment rate is another key figure that bears watching, the economy has lost jobs for 12 straight months and losses have accelerated in the last quarter. Although disaster was averted with the recent government rescue of the auto industry, there are many industries which are expected to struggle in the new year and which will be shedding jobs at a fast pace.
The rise and fall of oil was a major sub plot in the current economic crisis and that kind of volatility is expected to continue in 2009. Oil producers are expected to cut production levels in face of falling world wide demand and history has shown that tensions in the Middle East can quickly come to a boil, which can send the price of oil skyrocketing.
The fall in the price of oil was a major reason the Fed was able to lower rates to practically zero but from now on will have to use it’s balance sheet to affect monetary policy. It has been estimated that the Fed has already committed over $8.5 trillion in an attempt to unfreeze credit markets and that daunting figure is expected to rise further as it uses it’s resources to purchase mortgage backed securities(MBS) from Fannie Mae and Freddie Mac.
It is hoped that the Fed’s entry in to the MBS market will help bring down consumer mortgage rates and help spur a recovery in a sagging house market. A careful watch on the commercial real estate market is also warranted as some feel that it could mirror the fall of it’s residential counterpart sometime later this year.
It will be essential for monetary and fiscal policy to join together effectively in order to mitigate damage from worst economic downturn since the Great Depression.
