September 13th, 2012 3:14 PM by Richard T. Cirelli
Will Lower Rates Save the Economy?
The Fed announced today that it is using mortgages to help solve the persistently sluggish economy and high unemployment rate.
In a highly anticipated announcement, the Fed said it will buy $40 Billion of mortgages per month as part of a program called QE3. QE stands for “Quantitative Easing”. The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily unemployment, improve. And, there was a strong hint that they will announce the buying of Treasury securities later too. They also committed to keeping the Fed Funds Rate low through 2015 – extending it one year beyond their previous target date.
What is Quantitative Easing?
Quantitative Easing is the concept of the Fed becoming a buyer of Treasuries and Bonds to try and stimulate the economy. The Fed uses Quantitative Easing when they are hoping to achieve three things:
· Create inflation and avoid a deflationary economy
· Lower the unemployment rate
· Boost Stock prices
How Does Quantitative Easing Help?
One of the potential consequences of Quantitative Easing is that the US Dollar will weaken. This makes US exports more affordable abroad, as well as makes imports appear relatively more expensive. This will help large multi-national companies–which have a large influence on the economy and the major Stock market indices–thus stimulating our economy and hopefully our Labor Market, which continues to struggle.
What Happened During the Last Rounds of Quantitative Easing (QE1 and QE2)?Two previous rounds of QE had uneven effects on economic growth though they did manage to increase stock prices by more than 100 percent from their March 2009 lows.
The great news is that home loan rates remain near historic lows, making now a great time to purchase or refinance a home. If you have any questions or if you're wondering how you can take advantage of today's low rates, contact me to discuss how this might impact your particular situation.