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Freddie Mac: Economy Needs Fiscal Policy and Fiscal Stimulus

Even while interest rates continue to post record and near-record lows and affordability is relatively high, many consumers choose to rent rather than purchase homes.
[IMAGE] ""Financial worries among consumers are likely holding back home sales, which remain lackluster despite the most affordable home-buying market in decades,"" said ""Freddie Mac's"":http://www.freddiemac.com Frank Nothaft, in his September 2011 Economic Outlook.

Nothaft, chief economist for the Virginia-based GSE, says a boost in job and income growth would help instill confidence in consumers and stimulate the housing market.

""Federal Reserve"":http://www.federalreserve.gov/ policies have brought interest rates to their lowest levels since the 1950s, and ""it has provided some assurance that it will keep the federal funds rate at its current near-zero level through at least mid-2013,"" Nothaft wrote.

Freddie Mac's Primary Mortgage Market Survey for September revealed record lows for both 30-year and 15-year single-family loans.


A combination of monetary and fiscal stimulus has the potential to bring economic growth to the new year, according to the outlook.

The Federal Open Market Committee announced a new Maturity Extension Program this month - a plan to purchase $400 billion in long-term Treasury securities and to sell the equivalent in short-term Treasury securities. The plan is intended to expand loan demand.

This fiscal policy has the potential to promote a gradual increase in economic growth, according to Nothaft, but if combined with stimulus, the effect could be greater.

Nothaft cites the proposed American Jobs Act as one fiscal stimulus that has the basic components to potentially spur some growth in the economy.

According to Macroeconomic Advisers, the act would bring about 1.3 million jobs and increase economic growth by more than 1 percent in 2012.

Unemployment would fall 0.3 percent to 0.4 percent below where it would otherwise stand, according to Macroeconomic Advisors.

Moody's revealed a similar outlook, predicting a 1 percent to 2 percent increase in 2012 without a stimulus.

Freddie Mac expects unemployment to remain at 9.1 percent for the rest of this year and then drop slightly over 2012, ending the upcoming year at 8.7 percent.

The GSE expects GDP to increase throughout the remainder of the year, ending 2011 at 2.0 percent, and then jumping to 2.7 percent in the first quarter of 2012.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.

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