The Federal Reserve Ends Quantitative Easing

The Federal Reserve Ends Quantitative Easing

The Federal Reserve (The Fed) in response to the Great Recession and housing market collapse, instituted several rounds of quantitative easing.  Quantitative easing (QE) is a monetary policy used by central banks to stimulate the economy when other policies have failed.  In QE, a central bank purchases certain financial assets such as government bonds and mortgage-backed securities, in order to increase their prices and drive down their yields.  Lower yields (interest rates) will help to stimulate the economy by making capital cheaper to borrow.

Recently, improvements in the overall economy have prompted the Fed to reduce, and now eliminate, these asset purchases.  In a statement issued by the central bank’s Federal Open Market Committee (FOMC), the Fed leadership stated that: “There has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.”

While we have still not seen a full recovery in the housing market the Fed feels that there is enough progress in other parts of the economy to warrant the end of QE.  Nonetheless, the Fed cautioned that a full recovery has not taken root and that it would continue to act accordingly to prevent an economic reversal.

Many people feel the end of QE will signal the start of increasing interest rates.  To take advantage of today's low rates, contact me at barkerloans@gmail.com or 708.473.7688.