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Federal Reserve To Buy Mortgate-backed Securities: The 4-1-1 on Quantitative Easing 3

The Federal Reserve is unleashing more stimulus in its attempt to boost the U.S. economy.

 

The Federal Reserve is unleashing more stimulus in its attempt to boost the U.S. economy.

The bank announced it is buying $40 billion in mortgage-backed securities each month. The end date remains up in the air, as the Fed will re-evaluate the strength of the economy in coming months.

The purchases began today (Sept. 14) and expected to be $23 billion for the remainder of September according to CNN.

QE stands for Quantitative Easing. The definition of Easing is trying to bring interest rates down, particularly long term rates.

The way they’re going about this is the Federal Reserve made the decision to purchase for an indefinite period mortgage-backed securities totaling $40 billion every month.

They’re going to start immediately and the hope is that the markets will react positively.

What markets are those?

If you’re a saver, in regards to the banks, interest rates are expected to be lower for Certificates of Deposit (CD’s). If you’re a borrow and you want to purchase something such as a home, the mortgage rates are most likely going to come down.

None of this is ever known for sure but that is what’s being sought by the Federal Reserve with their Quantitative Easing.

What makes this decision different than all other Federal Reserve decisions is usually they announce they’re going to purchase a definite amount of securities. This decision makes history because the purchase of mortgage-backed securities will go on indefinitely.

The views expressed are by Sheldon Harber and should not be considered legal or tax advice. Please see a qualified attorney or accountant for answers to specific questions.

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mortgages, federal reserve, mortgage-backed securities, QE3,
quantitative easing 3, housing market, US economy

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Scott Simon September 19, 2012 at 05:59 PM
Sheldon would probably get in trouble with some agency if he wrote this, but essentially, QE3 is the government printing more money and having to borrow it to back it up. I can see this having a disasterous effect on the housing market. More money doesn't make it easier to get a loan. Home sellers are going to be fooled by this and raise their selling price but if a borrower can't get a loan due to a weaker credit score because he/she was affected by the continuing recession, home sales will continue to lag.

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