Tuesday, October 5, 2010

Will the Fed cause higher interest/mortgage rates?

Generally, when interest rates increase, so do mortgage rates.

The Federal Reserve is planning to purchase more bonds and mortgages on November 3rd.  They do this by printing money and this can lead to interest rates.

Higher rates could lead to a host of problems, like making business and consumer loans more expensive. And it would hurt the value of the Fed's huge asset holdings.
"When the Fed buys long-term government debt from the private market, it shifts interest rate risk from bondholders to taxpayers," Minneapolis Fed President Narayana Kocherlakota warned last week.
 And why interest rate will increase...inflation.

So lowering rates feeds the risk of inflation down the road without solving the problem today.
"We are following policies that unless changed will eventually lead to lots of inflation down the road," said Warren Buffett at Fortune's Most Powerful Women Summit Tuesday. "We have started down a path you don't want to go down
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