Federal Reserve adds $100 billion to economy as recession fear builds

Courtesy of Unsplash

With the fear of a possible recession on the horizon, the New York branch of the Federal Reserve recently made the decision to add $100 billion into the national economy. 

While initially this may not seem like cause for concern, economic and financial experts say this action has been taken to lessen the impact of a predicted recession.

In order to contribute $100 billion toward the U.S. national economy the Federal Reserve will need to print more money, which will be backed by gold, as is all American currency. The hope is that this contribution will help fight off the possibility of a recession.

Dr. Chase Porter, assistant professor of political science, said the causes for a recession in the economy can vary.

“The 2007 recession was primarily a result of what is known as the subprime mortgage crisis,” Porter said. “(This occurred) when banks were giving out too many mortgages to people who likely wouldn’t be able to repay them.”

Porter then explained that when people defaulted on their mortgages this created a collapse of the financial services industry, such as investing companies and banks, which took a toll on the entire economy.

“One common theme that runs through these recessions and others tends to be significant declines in the stock market, but markets are reacting to other economic factors, as well,” Porter said.

In the case of this potential recession, however, Porter attributes a variety of different factors currently in the economy and highlighted steps that can be taken to eliminate this risk, mainly the lowering of current tariffs on countries, such as China.

“Loans to banks—as the New York Federal Reserve is doing—or lowering interest rates may treat symptoms but not the underlying economic causes,” Porter said.

Ellen Kaminski, assistant professor of business, said there are limited options when trying to prevent a recession in the economy.

“The two things the government and pseudo-governmental agencies have to impact recession would be monetary policy, like the Federal Reserve, and fiscal policy through legislation,” Kaminski said. “There are things you can do (from) both those angles but it is a free market so there’s only so much you can do.”

Kaminski also said the amount of time since the most recent U.S. economy’s recession in 2007 could be concerning.

“Usually (recessions) are more recent than 10 years so I think that is adding to the insecurity,” Kaminski said.

For students who will be graduating and entering the workforce within four years, this recession is certainly something of which they should be aware, as such an economic occurrence can often take a toll on the country’s economy for years to come.

“The Federal Reserve adding money into the economy could help avoid a recession, which would help people who are graduating,” said Nick Clift, sophomore behavioral science major. “Wages are down and layoffs are high (during a recession) so it would be difficult for students graduating to get good jobs to pay off their loans.”

Despite the concern surrounding the future of the U.S. economy, the recent contribution of money into the national economy from the New York branch of the Federal Reserve in September is expected to alleviate some of the fear of a recession, at least temporarily.

Leave a Reply