The Federal Reserve's recent announcement that rates will likely stay low for another two years won't do the very thing that low rates are designed to do in the first place — get people to spend more, experts say.
Consumer spending drives the U.S. economy, but consumers are using what little bit of money they have to pay down debts, while financial institutions, still feeling burned from the crisis and credit meltdown, are applying tougher standards to approve home, auto and other loans.
"I don’t think lenders are going to be interested in extending a lot of debt in this environment," Mark Zandi, chief economist of Moody’s Analytics, a macroeconomic consulting firm, tells the New York Times.
"Nor do I think households are going to be interested in taking on a lot of debt."
Consumer confidence, meanwhile, is at its lowest levels since 1980.
The Thomson Reuters/University of Michigan's preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the median forecast of 63.0 among economists polled by Reuters.
Don't take an economist's word for it: take it from someone whose livelihood stems from healthy consumer demand.
"Consumer confidence is pretty fragile right now," says Don Johnson, vice president of U.S. sales at GM, according to Bloomberg.
"With the recent volatility in the stock market, we know that’s a concern we really have to watch closely."
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