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Rates are Soaring- What Will the Fed do?

By
Services for Real Estate Pros with Smaulgld LLC

Smaulgld

 

Take a look at the surge in interest rates over the past two  months and especially the past two weeks. Now the Fed is talking about tapering its purchases of mortgage backed securities which just the talk of doing so has driven rates higher.

In today's blog post, "To Print or Not to Print' we discuss the Fed's No Exit Dilemma.

To print or note to print that is the question;-Whether tis nobler in the mind to suffer the slings and arrows of economic misfortune, or to print volumes against a sea of troubles, and by opposing end them?” Imaginary ruminations of Ben Bernanke

Last week was a bad week for Fed Chairman Ben Bernanke. The Federal Reserve announced that they would continue their massive money printing/bond buying quantitative easing (QE) program. In the press conference Ben Bernanke mentioned that the Fed may, however, reduce their purchases later this year if the economy continues to improve.

This sent gold and silver down, drove bond yields higher and put a nice dent in the stock market. A disaster day for the Fed. Mr.Bernanke seemed confused as to why interest rates are rising. The Fed purchases nearly 90% of the new issuances of US Treasuries, owns more than 30% of the total amount outstanding, foreigners are “tapering” their purchases and bond funds are dumping them. Do you think investors are asking (as they sell) that if the Fed isn’t going to buy Treasuries, who will?

Rates aren’t rising because the economy is improving. They are rising because the buyer of last (and often only) resort is talking about slowing down their purchases.

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