Hey, this is Ron Pippin, loan doctor, guaranteedRate mortgage. Now, you may have heard the terms quantitative easing and Fed tapering because they’ve been in the news a lot lately. So what do these terms mean, and how can it affect you? Well, in normal times the Fed will cut interest rates to stimulate the economy. During this recent financial crisis, the Fed was forced to cut rates to basically zero to get the economy going again, but that wasn’t enough, and since they can’t cut rates below zero, the Fed used some new and unusual tools to stimulate the economy.
Now, one of those big tools is called quantitative easing, which is the purchasing of government and mortgage bonds in an effort to keep rates low and help stimulate that market. Now, they’ve been buying bonds at the rate of $85 billion per month. — How much is one billion? A billion months ago the Internet belonged to the dinosaurs. A billion minutes ago the Roman Empire was flourishing.—Which has helped to push interest rates to all-time lows and stock market to all-time highs. Now, recently the Fed started scaling back the buying of their mortgage and treasury bonds by reducing the purchases by $10 billion a month, and this is what they call tapering because they are tapering back their purchases.
Now, how does that affect interest rates? Well, in the past anytime the Fed has stepped back, interest rates actually pushed higher, but then they settled back down. Now, the question remains will interest rates move higher as the Feds taper their purchases? Well, experts believe that interest rates will move higher, and they did when the Feds first started their tapering. However, interest rates have since moved back down. Will they continue to hold? That’s the million-dollar question. Personally, I believe that interest rates will eventually follow the economy and will rise as time goes on. As the economy improves, interest rates are going to go up.
Now, other experts seem to agree that interest rates will be higher towards the end of this year as seen in this chart. Now, if you have questions about home financing, call me. I really can help you. If you have questions about buying or selling a home, now is the time before interest rates move higher. I would suggest calling Joel and Ann Zieve. I have been extremely impressed with their professionalism and how proactive they are compared to so many other agents. Give them a call, really. They will go over all your options with you. This is Ron Pippin with guaranteedRate. You can reach me or text me at 801-628-7667. Make it a great day.