MINNEAPOLIS - The Federal Reserve launched an aggressive new effort to boost the stock market, jump start the housing market and make borrowing cheaper for years to come on Thursday. One Minnesota economist isn't sure it's enough to bring the country out of an economic slump.
The Feds said it will spend $40 billion a month to buy mortgage bonds to make home buying more affordable.
Wall Street applauded the move by sending stocks soaring. The Down Jones Industrial climbed more than 200 points to close at 13,540. That's the highest closing since December 2007.
"To date (the Federal Reserve) has tried its whole tool kit, and things don't seem to be working so it tried one more attempt at expanding the money supply," said Dr. Bruce Corrie, professor of economics at the Concordia University College of Business and Organizational Leadership in St. Paul.
He says the federal boost will only have staying power if the global economy stabilizes and if consumer confidence returns. He believes the greatest investment must be at the local level.
"Local people coming together with enthusiasm to build up local economies," he said. "For instance, give a tax credit up to $1,000 to neighborhood households and what they could do is invest in neighborhood business."
Kevin Barrett says what happens on Wall Street seems far away from his ice cream business on Rice Street in St. Paul. He left a manufacturing career because he want to build a lasting business, but as it turns out, he works two jobs to keep the doors of Dar's Double Scoop open, putting in 13-14 hour days, 7 days a week.
"I am struggling to raise prices because the neighborhood cannot afford it. You are trying to put yourself in their shoes," said Barrett, who recently launched a new menu in order to boost his profits in a seasonal business. "What we need to do is build jobs, build our way out of the recession."
Barrett also believes low home ownership in the neighborhood keeps more small business owners at bay.
It's safe to say consumer confidence hasn't arrived at his corner.
"People who have money right now still holding tightly because they don't know what tomorrow is going to bring," said Barrett.
Dr. Corrie says the divide of the upcoming election could also threaten long-term growth.
"American people have to regain their confidence the economy is going to pick up and they also have to regain capacity of being a player in the market by getting a job. Where it may destabilize what the Fed is doing, is the American people are not united about what should be done," said Dr. Corrie.
The government says it will purchase mortgage securities because the economy is too weak to reduce high unemployment. It has also extended its pledge of super-low interest rates into 2015.