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Federal Reserve Poised to Keep Rates Low

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Millions of new homeowners across the country who bought their properties in the past year have likely seen significant savings as a result of the near record-low interest rates observed since around the start of 2012. Now, the nation’s central bank seems likely to continue efforts to keep rates where they are.

The Federal Reserve Board recently concluded a two-day policy meeting and experts say that its members seem resolved to continue the bond-buying efforts — known as Quantitative Easing 3 — that have already proven rather successful in depressing interest rates and buoying the housing market overall, according to a report from Reuters. The initiative includes the Fed purchasing $40 billion worth of mortgage-backed securities and $45 billion in Treasury bonds every month, and has not only helped to keep rates down, but also increased borrowing, hiring and investing nationwide.

Some critics of the plan say that the continual efforts might not be necessary, because they have already done so much to improve consumers’ chances for affording a home and therefore led to rising real estate sales rates and home values across the country, the report said. However, Fed Chairman Ben Bernanke and other top officials, including Federal Reserve Bank of Boston President Eric Rosengren, believe that the effort should continue for exactly that reason: They have had such a positive impact already that extending them could lead to more stimulus. If the Fed were to cut any of these bond-buying moves, it would likely reduce the amount of money it puts into Treasuries, while keeping mortgage-backed securities purchases at roughly the same level.

“I always take Rosengren’s views as mirroring those of the Fed chairman … and the chairman has not made many concessions to the hawks yet,” Christopher Rupkey, a New York-based chief financial economist at Bank of Tokyo-Mitsubishi, told the news agency. ”[Mortgage-backed securities] probably helps the housing market strengthen and maybe it should be the last to be cut.”

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Home affordability is still hovering near the all-time highs experienced for much of last year even as prices continue to rise considerably, and is expected to do so at least through the end of the year. Pent-up buyer demand might be discouraging some would-be buyers, but many are still eager to take advantage of the deals now available to them before the market improves any further.

Image: iStockphoto

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  • http://frugalguruguide.com/articles/ Jenny @ Frugal Guru Guide

    Makes bond investments even less appealing….

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