Feds Latest Move May Send Rates Lower

Regardless of requests from Republicans to refrain from expansion of its stimulus program, the Federal Reserve publicized an unusual plan to decrease the borrowing costs for business and consumers in efforts to create economic growth.

By using funds collected by the sale of holdings of short-term federal debt over the next 9 months, the Federal Reserve stated that they would be investing $400 billion in long term Treasury securities in hopes to decrease interest rates on mortgage loans, corporate bonds and other credit.

The Federal Reserve stated that they were taking this action because it noticed the economy was not expanding fast enough. They realized they would not grow quickly enough to help the 25 million Americans who were unable to find full-time work. In addition, they noted that the stress in the world’s financial markets could contribute to the lack of recovery.

The country’s economic growth remains gradual. The unemployment level remains to stay high. Spending within households has only increased minimally.

Prior to the Fed’s announcement, bond investors had lowered investment rates. Major indexes decreased significantly as well.

These lower rates may entice many companies to invest in equipment and employ more workers. This will result in consumers spending again, not only on houses but also on vacations and cars. The downfall is that although loans are cheap, they are difficult to acquire.

Republican politicians do not support the Federal Reserve’s idea and insist that it will not help the economy and only result in harmful outcomes.

Similarly, many Liberals felt as though the Fed had not done enough. They claimed that the move was not bold and will not generate the millions of jobs that the country is in need of.

The Federal Reserve had tried this plan once before in the 1960s. Their hope is to lower rates by transferring its wealth into riskier long-term investments.

The Fed has accumulated over $1.6 trillion of the federal debt. The plan is to gather $400 billion by June 2012 by selling securities with outstanding maturities of fewer than three years and buying approximately the same amount in securities with maturities greater than six years.

Economics estimate that the Federal Reserve’s plan may lower interest rates by a few tenths of a percent, which is a huge amount when considering the large degree of borrowing.

It is also estimated that within the next 2 years, the plan will add approximately 0.4 percentage points to economic output and help generate about 350,000 jobs.

The Fed similarly hopes to hold short-term interest rates near zero until the middle of 2013. This was an extension of a policy made in December of 2008.

Original Article: http://realtormag.realtor.org/daily-news/2011/09/22/fed-s-latest-move-may-send-rates-lower&WT.cg_n=RMO&WT.cg_s=RSSDaily?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DailyRealEstateNews+%28Daily+Real+Estate+News%29&utm_content=Google+Feedfetcher

 

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