The end to this long painful economic downturn is coming into view. The recession has more to run. Unemployment, which hit 8.9 percent last month, is headed towards 10 percent, but the worst is over. The turn in the economy is largely due to the unprecedented policy response by the Federal Reserve, the Obama administration and Congress and policymakers across the globe. Central banks have slashed interest rates to zero and are printing money to restart lending. It is working. Businesses can raise short-term money again to finance their day-to-day operations and mortgage rates are at record lows allowing homeowners refinance and putting a floor under the beleaguered housing market. The fiscal stimulus package passed just a few months ago is already helping as tax cuts get into checking accounts and the infrastructure spending ramps up. Efforts to buoy the banking system appear successful. The stress tests the nation's largest banks just completed were indeed very stressful. While the banks have more work to do, they can withstand the darkest of economic scenarios. Policymakers aren't done. Efforts to entice mortgage investors to modify loans to forestall still mounting foreclosures have proved disappointing. And the economy will surely not speed directly back to health. It may even stumble again requiring another round of stimulus. Nonetheless, it is fair to say that policymakers learned a key lesson from the great depression, namely that when everyone is panicked, government must act forcefully. It has and thus the current great recession will soon, too, be history. I'm Mark Zandi.I wonder if Moody's has changed their rating of municipal and corporate bonds as a result of this new optimism.
Wednesday, May 13, 2009
Mark Zandi is the head economist of credit rating agency Moody's. Here's what he said about the government's response to the current economic mess: