The Federal Reserve is not exactly the “reason for the season”, but its recent decision to leave the interest rates unchanged, has given holiday shoppers something to cheer about. Sadly, the Fed held back an extra gift penny stock investors had on their list: a signal that rates might actually be lowered soon. Wrapping up their last meeting of the year, Fed chairman Ben Bernanke and his colleagues agreed to leave interest rates unchanged at 5.25%, the fourth straight meeting without budging the rate. For the average American, this meant commercial banks’ prime interest rate (for certain credit cards, home equity lines of credit and other loans) stayed at 8.25%, giving borrowers a break. “The Fed is not acting like the Grinch this Christmas. But it is not putting presents in anyone’s stockings either,” said one chief economist. Fed policymakers said growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market. However, they stuck with their previous assessment that the economy probably will expand at a moderate pace in coming quarters. But most Americans aren’t waiting for the Fed to tell them that the economy will experience modest growth. By the looks of things, general economic optimism is motivating a lot of us to hit the malls; a lot more than was expected. Consumers, battered by a multitude of economic woes, came roaring back in November, pushing retail sales up by the largest amount in four months. The nation’s retailers saw sales rise by 1% last month, a gigantic leap over the 0.1% rise that economists had been forecasting. This unexpected optimism is good news for economists who think the U.S. economy will experience a soft-landing. The gloom-and-doom, hard-landing economic nay sayers though are not sure whether November’s boom will carry over through the entire Christmas shopping season. The general consensus though, seems to be that consumer spending will stabilize in the coming months. This is reflected in part by the drop in gas prices, when they touched a record $78.40 a barrel last summer during the Israeli-Lebanese war. Why pay so much attention to consumer spending? Because it accounts for two-thirds of total economic activity. So what were people spending their November dollars on? The 1% November increase reflected widespread strength in a number of areas. Electronics and appliances (i.e. flat-screen TVs for Christmas gifts) led the way with a 4.6% increase. What does that mean for the holiday season? On one hand, I hope it means consumer confidence runs throughout the holiday season and kick starts 2007. On the other hand, I also know that the holiday season means people tend to spend more than they perhaps should. If you happen to be rich, spend lavishly if you so choose. If you’re not rich, there’s no reason to show off at this time of year by spending money you don't have. Remember, the economy is governed in large part, by simple arithmetic. And eventually, the gravitational power of money will catch up to all of us. So kick the GRINCH to the curb, spend carefully, invest in penny stocks wisely, and enjoy the holiday season.

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