The Federal Reserve officials are dicussing over stimulus program

In last December the policy makers of the Federal Reserve Board expressed divergent opinion about whether to stop or expand relief programmes regarding mortgage rates.

On 15th and 16th December the board held closed door meetings. From the minutes it was learnt that the Federal plan involving $1.25 trillion to purchase mortgage securities from the two mortgage giants, Fannie Mae and Freddie Mac might have to be expanded and stretched beyond its current expiry date of 31st March.

The argument was that without this extra dose of remedial medicine the nascent recovery would not be able to get back on the rails.

Only one member opined that that it was high time the programme was winded up taking into account the improvement in the economic and financial weather conditions.

The debate is bringing into focus the doubts about the much talked about economic recovery. The big question was if the economy would be able to run by itself once the props were removed. There were fears that once the buying stopped the housing market would once more fall back.

At the meeting decision was taken not to bring about any alternations to the running programmes. In September they had wanted to slow down the purchasing and down shutters by March 2009 instead of the close of 2009.

The key to all round lasting economic recovery is the housing sector. It was the foreclosure crisis that brought down the economy on its knees triggering one of the worst recessions in American history.

The minutes did not specify the names of the speakers. It read, “Generally the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness.”

At the meeting it was decided to keep the key lending rate of the bank at the near zero level. An assurance was given that it would be kept low for an “extended period.” The idea was that this low rate would tempt people to spend and thus give a fillip to business. This in turn would lead to economic growth.

Experts are sure that the Fed will not touch the rates even in their January meeting. It will remain so for a good part of 2010. The officials right now are not worried about inflation because the firms have “little ability to raise their prices” in this brittle economic climate. However this view was not held by all – the opinions being mixed.

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