In case you didn’t notice, the Federal Reserve received a lot of publicity last week.
Defying most market expectations and my own, it made the decision to not begin tapering its stimulus efforts to support the slow-growing economy. As a result, it will continue to buy $85 billion a month in long-term Treasury bonds and mortgage-backed securities to keep long-term interest rates low for at least the next few months. I briefly touched on their policy in my September outlook post.
For you, this means lower mortgage rates in the immediate future. However, rates will most likely begin to inch upwards when (if) the economy gets stronger, and the Fed’s decision to taper is clearer.
If you’re thinking, “Hey Alan, this is great but I’m still confused at how this works,” or you want to know why the Fed has the power to influence interest rates; I came across this excellent read in the Washington Post on the Fed’s job as the nation’s central bank.
Would you consider the chairman of the Federal Reserve the most important person in the U.S. behind the president? You may after reading this article. Give it a look and share with me your thoughts!