Now if you were to do a casual search, you would see that Quantitive Easing has been over for years, and that's kinda true. The Fed hasn't increased it's holdings since QEIII, but as those bonds payoff, the Fed has been quietly pouring those payments back into the MBS market. You can see this in the low mortgage rates (and correspondingly low bond rates across the board) and at:https://www.federalreserve.gov/monetary ... trends.htm
If you take the long view, it looks flat, but if you zoom in, you see that flat line is really a series of peaks and valleys of the 10 billion per month range as payoffs get recycled into new purchases.
The Fed plans to start at 10B/mo, and ramp up to 50B/mo.
They used MBSs to drop bonds across the board, and now they are finally reversing the trend. Maybe. This is the Fed, and actions rarely match statements of intent.
What does this mean to us?
Mortgage rates will probably go up. Other rates as well, but as a secondary effect. I'm trying to keep this in the direct cause/effect. Macroeconomics allows for much confusion by tracking secondary and tertiary effects that muddy the waters for many folks. And while this can be a source of political strife, (and I am more guilty of this than most) I would like to focus this thread on practical effects and moves we can make to profit from this or cut our losses.
On that note, I think the rise in mortgage rates will put a damper on real estate. Higher rates translate to higher mortgage payments, so people will be tighter on the max price they will pay for a house.
This causes me to get fired up about fixing up the Marysville house to sell, as we have been slacking on that front. It's one more reason to sell our other rental. If you have an adjustable rate mortgage, or HELOC, now may be the time to lock it down.
If you currently own bonds, now seems like a good time to review this. We have had ZIRP for long enough to get used to it. If this actually happens, you will want to be in front of it.
I don't view this as good or bad, just potentially different (at least, I try to). And if you go back to my predictions from the start of QE, you will see I have been wrong, at every stage. I could still be wrong. And the "guidance" from the Fed hasn't been any more accurate than I have, so this could all be more smoke and mirrors. I don't think it is worth panicking about, but it is big and direct enough to be factored into decision making.
You have been warned!
![Laughing :lol:](./images/smilies/icon_lol.gif)