Fed to buy hundreds of billions more in bonds
The Federal Reserve is making a bold effort to invigorate the economy by announcing it will buy hundreds of billions more in Treasury bonds.
The Fed says it will buy $600 billion of long-term government bonds by the middle of 2011 to further drive down rates on mortgages and other debt. This will be in addition to an expected $250 billion to $300 billion in purchases over the same period from reinvesting proceeds from its mortgage portfolio.
The idea is for cheaper loans to get people to spend more and stimulate hiring. The Fed says it will review whether adjustments are needed depending on how the economy is performing.
Some worry the Fed action will do little to boost the economy because interest rates are already historically low. Others fear the bond purchases could drive inflation too high over the long term and unleash speculative buying in assets like stocks.
Spending money in this fashion is like building a larger campfire on a cold night by throwing shreds of your clothing into it. Sure, the fire and your smile grow larger while you begin to feel good about your decision, but eventually all of your clothes are reduced to ashes and the fire dies down. Spending money we don’t have in order to boost the stock market, drive down unemployment, and jump start the economy is a very dangerous thing. I believe the long term effect of this decision will be dramatic increases in interest rates over the next couple of years. From an interest rate and home price perspective, there has never been a better time to buy a home. If you’re on the fence, it’s time to jump off!
Let me know if I can help you find a home to buy. Click the “Search the MLS” link to the right to find the home of your dreams, then we’ll go look at whatever piques your interest! Call me at 850-678-HOME (4663).