The Fed’s likely to keep QE3 (Quantitative Easing #3) in place longer
Janet Yellen, the new chairwoman of the Federal Reserve will most likely continue the “easy money” policy established by of her predecessor, Ben Bernanke, and will continue printing money under the QE3 plan. Yellen will slowly reduce the amount of new money added to the market in order to keep interest rates low and help boosting the very slow economic recovery. Yellen highlighted how low interest rates have boosted the housing recovery, a trend that’s been “broadly beneficial” for the economy. This is consistent with research conducted by well known economists which shows that home prices have had a greater impact on the wealth effect than stock prices. Given this sentiment, the Fed may continue the purchases of short term bonds even after it begins to taper government securities purchases.
What else?
In addition, Yellen is interested in lowering the unemployment rate by maintaining pricing stability and by keeping the inflation rate near 0%. This will hopefully improve the employers and consumers confidence in the economy, resulting in increases in household spending on goods and services and in employers hiring rate.
What has happened
In many areas, the economy hasn’t returned to its pre-Great Recession levels. The number of Americans who have been out of work for a long period of time remains above 7% since 2008. That’s one of the reasons the Fed must maintain a highly accommodative monetary policy and slowly ease off the QE3 plan.
23 Responses
It will be very interesting to see how the economy does under Yellen. Though the economy hasn’t been doing great, it certainly has been improving to look at the positive side!
That’s right. Hopefully the economy will improve at some point in the next few months.
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I’m looking to buying a house (well a co-op) soon so I’m hoping the mortgage rates stay low. But if the economy improves, interest rates have no where to go but up. Leaving them too low might have unintended consequences as well.
You are completely right. Good luck finding a house.
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I remember when Bernanke announced that they likely wouldn’t do much with interest rates for another two years….and was about two years ago. It’s sad that the economy hasn’t recovered enough where they could ease us out of these policies…but on the other hand, there are worse things than low interest rates. 🙂
Very True!
I hope that the economy will not only improve, but also bring fewer expenses.
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Even if mortgage rates go up the rates on savings accounts will stay the same. The fed will keep short term rates at 0 through 2015. Short term rates is what banks use to set their savings account.
Cool!
Thanks for the insight on short term rates!
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It’s great that inflation is being slowed but I’ll really be happy if and when the minimum wage increases.
I will as well. I hope that you achieve all your goals for the new year!
I think it’s great to learn about the Marco issues affecting our economy, but why worry too much about uncontrollable things like monetary easing, inflation, and unemployment. I prefer to handle my own situation as best as I can, and not read in too much to what the fed is doing. Yes the decisions the fed makes will possible affect my finances, but when that time comes I will handle it then.
Okay! I don’t know if I completely agree with you, but you do have valid points!
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I miss the days when you could get high interest in savings accounts. But then again I did take advantage of the low interest rates in mortgage loans. I remember hearing back in 2009 that the economy would not fully recover until 2014 or 2015. I thought that was crazy but I guess they were right. Though we still have a ways to go.
Yes we do, and I hope that we will only do well, and that there will be no more issues with the market, interest rates, and taxes. I just can’t stand paying such high income taxes. It really hurts, but I hope that the money goes to a good cause!
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Although I am Canadian, our economy does fluctuate a bit with the US economy. It will definitely be interesting to see where interest rates go in 2014.
Yes it will.
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