What will the end of Quantitative Easing Bring?

printing moneyIt doesn’t seem possible it’s been almost six years since Quantitative Easing (QE) came into play to help shore up the U.S. Economy. Now, our government holds around $4.5 Trillion in assets. Yes, I did say TRILLION. When it all first started, it felt a bit like a magician pulling a billion dollar rabbit out of his hat. Now, it feels more like a common practice to help keep things that are part of the American Dream–like an affordable mortgage–accessible to the masses.

So what will the end of the QE bring?

Continued Purchasing of Mortgage Bonds

I know-it’s confusing. The Fed just said they were stopping QE so why are they continuing to purchase assets? The Fed is using the proceeds (e.g., interest, principle) of their current mortgage portfolio to reinvest back into the market to help maintain stability. Given that there are $1.7 Trillion in mortgage backed securities, we are probably looking at something around $10 Billon a month.

Keeping it Stable

The Fed plans to keep what they have-and given that they have Trillions of it – the sheer fact they are holding the bonds creates a stabilizing effect. They will hold these bonds, and continue to invest as mentioned above, but eventually will allow their holdings to shrink naturally (e.g., as loans paid off) over time.

Short-Term Steady Interest Rates

The Federal Reserve (i.e., The Fed) has indicated that they will not raise rates in the near term.  Instead they will increase them over time as the market shows continued signs of good health.

So how will you know when rates are likely to go up? Well, if you read the various articles out there are a few things that stand out.

FMG’s “Top 3” Signs Rates are Going Up:

  1. Inflation: Anything surpassing 2.5% should give you pause
  2. Unemployment:  Anything under 5.5%…especially if coupled with rising inflation
  3. Portfolio Reduction: If the Fed begins signaling that they will allow their portfolio size to begin to shrink, I believe rate increases are right around the corner

The good news is that it’s still a great time to buy that first home, consider a vacation home or make an investment property purchase. While many of us have been spoiled by the current interest rate market, it can’t last forever. Give me a call, or shoot me an email, to discuss what options might be available for you.

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