Earlier this week, a co-worker of mine wrote a great post how an extra round of quantitative easing from the fed may change mortgage rates. For individuals who do not understand quantitative easing is actually a system through which the money supply is increased by the Federal Reserve. This transport of money to the economy is expected to provide banks excess reserves, which surplus is given out or place to the economy, ideally revitalizing development.
In a talk earlier today Fed Chairman Ben Bernanke appeared to suggest that financial conditions justify more quantitative easing by the fed (this could be the second main round of quantitative easing, consequently the moniker QE2). Bernanke said:
“Given the Committee’s goals, there might seem-all else being equal-to be considered an incident for additional action. Nevertheless, like I suggested before, among the meanings of the lowinflation environment is the fact that coverage is more apt to be restricted by the very fact that nominal interest rates can’t be lowered below zero.
Certainly, the Fed lowered its goal for the federal funds rate to a range of zero to 25 basis points nearly a couple of years back, in December 2008. More policy adjustment is definitely potential despite the overnight rate of interest at zero, but non-conventional policies have constraints and prices that really must be considered in evaluating whether and how harshly they ought to be used”.
This isn’t really a shock to anybody. Commentators and experts have been anticipating another round of quantitative easing for fairly a while now. The market keeps developing at a considerably slower rate compared to the Fed’s increase target of 2 %.
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