Bernanke: QE Keeping Mortgage Rates Low

Ben Bernanke: Lessons learned from 10 years of quantitative easing | LIVE STREAM perversely serve to extend the period of low long-term rates,” Bernanke said in a speech to a Fed research conference in San Francisco. Bernanke’s comments throw cold water on the idea that the Fed.

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(AP) — Chairman Ben Bernanke. rates will stay low as long as the economy is weak. The Fed originally said it expected to keep rates "exceptionally low" through mid-2013. It extended that target to.

Meanwhile, the bank’s commitment to keeping short-term interest rates low will most likely go unchanged for another year after QE stops. These low rates will only allow inflation to fester. Once the Fed finally does decide to increase the nation’s artificially low interest rates, the cost of lending will rise with it – potentially leading to a higher deficit and more government debt.

Earlier this year when Chairman of the Federal Reserve Ben Bernanke first started talking about tapering the $85 billion a month QE program he was thinking that the Fed could keep the fed funds rate low while tapering the size of the QE purchases and still achieve low interest rates.

But it begs the question: If the Fed’s $40 billion in MBS purchases per month and cumulative MBS purchases of over $1.2 trillion are not enough to keep mortgage rates low and demand up, is QE.

Notably, mortgage rates dropped significantly on the announcement of this program and have fallen further since it went into operation. Lower mortgage rates should support the housing sector. The Committee is also evaluating the possibility of purchasing longer-term Treasury securities.

 · The Fed originally said it expected to keep rates "exceptionally low" through mid-2013. It extended that target to late 2014. And besides embarking on two rounds on QE, the Fed has sold short-term Treasurys and replaced them with long-term Treasurys. That shift is intended to push long-term rates down further.

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Quantitative easing also stimulates the economy in another way. The federal government auctions off large quantities of Treasurys to pay for expansionary fiscal policy.As the Fed buys Treasurys, it increases demand, keeping Treasury yields low. Since Treasurys are the basis for all long-term interest rates, it also keeps auto, furniture, and other consumer debt rates affordable.

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