Personal income and savings levels have important macroeconomic effects and implications for Federal Reserve policy. If consumers save more due to falling income or rising unemployment, consumption will decrease, slowing GDP growth. Lower loan demand and tougher lending standards could also negatively impact banks. To encourage spending, the Fed should continue programs like TALF and maintain low interest rates, incentivizing borrowing and consumption to boost the economy.

1. Personal Income and Personal Savings: Its Relevance and Its Implication for Fed Policy By Daniel Esposito For Rutgers Fed Challenge Tryout

5. Relevance: Macro-Economic Effect: 70% of GDP is composed of Consumption Consumer is scared Consumer Confidence is down from previous years Rising Unemployment If consumer is scared they save and don’t spend Lower Consumption  Lower GDP growth Potential Banking System Effect: Flushing cash into banks Significantly reduced loan demand Tougher underwriting standards Souring Commercial Real Estate/Business Loans

6. Implication for Fed Policy: Fed should embrace policy that encourages consumption and spending Keep TALF Program “ The Term Asset-Backed Securities Loan Facility is designed to facilitate the renewed issuance of consumer and small-business asset-backed securities,” FRB of Boston President Rosengren March 2009 "Conditions in financial markets have improved considerably in recent months. Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time," Fed Statement August 2009 Maintain low federal funds rate Keeps cc rates and he rates low and deposit rates low Provides incentive for consumers to borrow and spend

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