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Does the taper mean it’s going to be more expensive to borrow?

Paddy Hirsch Dec 18, 2013
Whiteboard

Does the taper mean it’s going to be more expensive to borrow?

Paddy Hirsch Dec 18, 2013

In a word, no.

At least, not yet. And even then, not by much.

The Federal Reserve announced today that it’s tapering off its quantitative easing program: Buying just $75 billion of bonds, instead of $85 billion, starting in January. But it also committed to holding interest rates down, saying it will keep the “exceptionally low” target range for the federal funds rate to between 0 and 0.25 percent. What’s more, the Fed said it expects to keep rates that low rate:

“[W]ell past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.”

This means that the interest rate that banks charge to lend to each other will stay low.

But what does it mean for you and I?

It means that the interest rate that lenders charge people like us to borrow money to buy cars, houses and educations will not move by very much for quite some time. Even if unemployment drops below 6.5 percent, which some observers reckon could happen next year, the Fed will keep those rates low. 

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