What a divided Congress means for the Fed

Now that the elections are over, it’s time to take a look at what the new government will mean for the country’s future. Most at stake? The economy. So how will the new Republican-led House affect the Fed’s moves? Stacey Vanek Smith: Quantitative easing is kind of like monetary policy meets shopping spree. Karen Petrou is with Federal Financial Analytics. Karen Petrou: Quantitative easing is when the government buys a lot of something: Treasury bills, Fannie or Freddie bonds. The Federal Reserve buys those bonds from banks; to pay for them, the Fed essentially prints money. Then it hopes for a trickle-down effect: interest rates stay low, banks lend, people and business borrow and spend. It’s an indirect stimulus to the economy and it might not work. The Federal Reserve tried quantitative easing two years ago to the tune of roughly $2 trillion, and the banks didn’t exactly start handing out loans.

To listen to the show click here: http://marketplace.publicradio.org/display/web/2010/11/03/pm-what-a-divided-congress-means-for-the-fed/