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Fed Action Could Mean Central Mass Business Boost

Saturday, September 15, 2012

 

Local experts say the region could see a boost in several key sectors after the Federal Reserve announced its newest stimulus initiative on Thursday.

In order to spur on the economic recovery, the Fed will buy up $40 billion of mortgage-backed securities each month and will keep interest rates at near-zero levels well into 2015.

Local Economist Weighs In

The initiative is the third installment of the practice known as quantitative easing, or QE3, and is the latest in a series of unprecedented measures by the Fed to jumpstart the economy in the past four years.

"This is something that is new to the Fed, so this is unexplored territory for them," said Victor Matheson, an associate professor of Economics at Holy Cross.

"My sense is that it is likely to have some small positive effect, but the downside risk is extremely small."

The main concern among critics of quantitative easing is that the Fed's actions will cause increased inflation.

However, said Matheson, inflation over the past five years has actually been below the 2 percent annually that officials aim for, and the fears of skyrocketing inflation after the rollout of QE3 are likely overblown.

According to Matheson, the real action will be in industries that rely on the sale of goods and services on credit, such as home and auto sales, where the ultra-low interest rates may encourage consumers and businesses to make larger purchases and investments they may have been putting off.

Small Businesses Need Customers

Bill Vernon, the Massachusetts state director for the National Federation of Independent Business, said the announcement's positive effect on the stock market, which surged after the plans for QE3 became public, may spur buying in the Bay State as consumers begin to feel wealthier, which would be good news for the members of his organization.

"The problem for small businesses is the lack of customers," he explained.

"On the lowering of interest rates, I'm a little more skeptical that that's going to have a positive impact."

A Little More Help for the Housing Market

Yet for Diane DeCiccio, president of the Worcester Regional Association of Realtors, the new action by the Fed will only add to the momentum she has already seen picking up in the Central Mass housing market.

"It's a great thing because that means there is a lot of buzz," she said.

"Consumer confidence is really at an all-time high for the last few years."

By making borrowing cheaper, DeCiccio said, the Fed is definitely goign to help encourage homeowners to refinance their current loans or take out new ones in order to upgrade to larger or newer homes.

The fact that new home construction seems to be on the rise as well doesn't hurt.

"It's so refreshing to see new houses going up again because it's been years." 

 

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