Fed expected to continue ‘QE3’

David Gura Dec 11, 2012
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Fed expected to continue ‘QE3’

David Gura Dec 11, 2012
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The Federal Reserve committee that sets U.S. monetary policy meets today and tomorrow. The Fed has been buying bonds and securities on and off since 2008, and plans to continue the program until conditions in the labor market “improve substantially.”  

There are signs the Fed’s policy, known as “quantitative easing,” is working.

“Probably the most convincing piece of evidence you could point to is what’s happening in the housing market, and what’s happening to mortgage rates,” says Ann Owens, an economics professor at Hamilton College.

The Fed is buying mortgage-backed securities, hoping to push mortgage rates down. That’s happened, and in many parts of the country, housing prices have gone up. 

That may influence what types of assets the Fed will buy in the future. Kevin Jacques was an economist at the Treasury Department, and he says the Fed wants to see ripple effects.

“Maybe, just maybe, we’ll get a positive kick from the housing sector, and that will jumpstart this economy some,” Jacques adds.

But the “fiscal cliff” casts a long shadow over the meeting, and according to Jacques, Fed members know there is only so much they can do.

“They can’t control the political environment that we’re operating in now,” says Jacques.

If we do go over the fiscal cliff, there will be even more pressure on the Fed to keep the U.S. economy from going into another recession.

 

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