The Fed surprised plenty of people by not announcing they were going to start tapering quantitative easing yesterday. But should this surprise anyone?
Yesterday’s announcement from the Fed that they would NOT start to taper quantitative easing (QE) surprised plenty of people. The Fed will continue, for now, with its $85-billion monthly bond purchases which have propped up economic growth and equity markets for much of the year.
The Fed fooled plenty of people didn’t they? Or did we fool ourselves since we know that the economy is not really that strong. Well, housing has shown plenty of improvement the last several months. Real estate has been the bright spot in the economy for quite some time.
Since the Fed has stated they would not change anything until the economy improves, is their decision really a surprise?
In Bernanke’s press conference, he did mention that the upcoming debt ceiling battle could endanger the US economy just like it did last time. Bernanke said:
A factor that did concern us was some upcoming fiscal decisions. It is the case I think that a government shutdown, and perhaps even more so a failure to raise the debt limit, could have very serious consequences for the financial markets and for the economy.
Not that the idiots in Washington care. But Wall Street did care as we saw the S&P 500 and the Dow Jones industrial average hit record levels after the Fed’s surprise decision to maintain QE. Since interest rates reacted quickly and moved downward, it is probably good news for many Americans.
But will delaying the reduction of QE help the economy to get stronger or create any jobs? Well, QE hasn’t help to create many jobs despite the billions of dollars they are spending every month. Yes, it does mean super low mortgage rates should be around for a little longer.
And Wall Street loves quantitative easing…
But is the Fed just prolonging the inevitable? Surely they can’t keep printing money because they are scared of what will happen IF/WHEN they stop.
The Take Away
Maybe the Fed needs to yank the QE band aid off.
Wall Street will freak out. But they will get over it.
And it means that mortgage rates will rise. Which could have a negative effect on real estate.
Considering that NAR reported today that Existing Home Sales Hit Highest Level in 6.5 Years, maybe all the worry about tapering is much ado about nothing?
Mortgage rates increased recently and yet, home sales did not fall off a cliff.
And like I posted yesterday, housing starts were up in August.
Home builders are confident.
However, for anyone looking to buy a home, I would still suggest getting that rate locked before the Fed does start to taper QE. Because as we have seen, rates will go up from the Fed just talking about reducing quantitative easing.
Be sure to check back tomorrow when I post this week’s Mortgage Rate Update. Or subscribe and never miss another post!