Why Printing Money Is So Easy for the Fed
The Federal Reserve is busy looking at what to do next to try to keep the economic renewal on track, as the central bank meets for the last time this year. The Fed also understands its impact will be hindered by the ongoing battle in Congress regarding the pending fiscal cliff.
The Federal Reserve is speculated to continue its third quantitative easing (QE3) program of buying mortgage bonds each month. The effect will see the Fed increase its holdings of mortgage bonds to nearly $4.0 trillion, according to a Bloomberg survey. (Source: “Fed Seen Pumping Up Assets to $4 Trillion in New Buying,” Yahoo! Finance via Bloomberg, December 11, 2012.)
The bond buying has helped to ease financing rates and drive the housing market higher.
The Fed has spent $40.0 billion a month to buy mortgage-backed securities and, in theory, lower the financing rates. The yield on the 10-year Treasury stands at 1.6% versus 1.8% prior to the establishment of QE3—so it’s working.