Although 75% of Americans surveyed in the first quarter of 2008 thought the economic situation was “poor” at the time, 60% thought economic conditions in 2009 would be “good.” Considering the market volatility over the past few months, will we see an improvement in 2009 economic conditions? What will this situation mean for you and your money?
The housing sector has taken a significant tumble recently. Although some economists forecast another year of falling home prices, the decline is projected to be less than half that of 2008. Former Federal Reserve Chairman Alan Greenspan speculated that home prices may start to stabilize or touch bottom sometime in the first half of 2009, but could continue to fall through 2009 and beyond.
Interest Rates and Inflation
On October 29, 2008, the Federal Reserve lowered the federal funds rate from 1.5% to 1% and expressed a weaker economic outlook related to worries over the financial and credit-market crisis. The Federal Open Market Committee said it “expects inflation to moderate in coming quarters to levels consistent with price stability….Nevertheless, downside risks to growth remain.”
Before the rate cut, some economists believed that the Fed would have to raise interest rates in the first six months of 2009.
In a retirement poll conducted early last year, before their retirement accounts and stock investments plummeted, many Americans already had a gloomy outlook on the long-term future. In fact, only 29% of respondents were “very confident” about saving enough to live comfortably in retirement; just 44% thought they would be able to retire when they want to.
When examining prospects for the near future, it is important to consider your long-term financial goals. Economies and markets fluctuate constantly. It can be tempting for investors to make decisions based on short-term fluctuations without fully considering the long-term consequences.
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