One perspective on loan interest rates

When deciding whether it’s time to buy, considering the current loan interest rates, there are two main things to remember:

First, the Federal Government’s  goals for their current Quantitative Easing policy (dubbed QE2) is to inject $600 Billion  into the economy  to (1) boost Stock prices, (2) create inflation, and (3) lower the unemployment rate.

Second, while these goals are designed to stimulate our economy and keep our recovery moving forward, they are also unfriendly to Bonds and home loan rates. ie. When stock prices rise, investors will flock toward stock purchases and away from Bond investments.

In recent weeks, we’ve seen evidence of QE2 at work: Stocks have  been improving, the unemployment rate has declined, and we’ve seen an increase in global unrest of late, not just in Egypt, but in other parts of the world as well… and much of this centers around runaway inflation in commodities and food.

This means that the old trading saying, “Don’t Fight the Fed” is still ringing true. If the Fed wants to accomplish its three QE2 goals at the expense of Bonds and home loan rates, they probably will.

 

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