Fed Seeks to Up Rates, Invest $ Outside of Bonds

If you missed my Wednesday note last week you may have heard noise about the Fed making some moves that will affect interest rates long-term. During their meeting last week, the Fed felt two things needed to happen next: SLOWLY raise rates and to stop reinvesting their bonds’ profits back into the bond market. What does this mean? Since 2008 the Fed has been investing in the bond market to drive the economy forward and while keeping rates low. Whenever those bonds “matured”, or came to the end of their term, the Fed has been reinvesting the profits back into the bond market. The Fed wants to redirect these profits back into other areas they believe will be more productive for the economy given its current strength.

This announcement received almost no reaction from the markets as this is exactly what investors expected. As a consumer, buyers should have felt little to zero impact because the markets had already adjusted rates in anticipation of this move. Given the strength U.S. Economy, the Fed is managing the natural tug-of-war between rates, battling inflation and economic growth. This is a much better position than having to pump Trillions of dollars in the economy to pull it out of a recession. The important take-away here is that this is going to be an extremely gradual shift and this move is an indicator of our economy’s health.

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192

First United Bank & Trust

D: 214-529-9622

F: 855-239-6079

6401 S. Custer Rd.

McKinney, TX 75070

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