Economists React: ‘Huge Step Forward’
By Phil Izzo
Economists and others weigh in on the Federal Reserves decisions to buy Treasurys and increase purchases of other securities.
- This is a huge step forward, which we have thought inevitable for some time but did not expect to see in the statement today… The point here is to drive new marginal capital flows out of Treasurys, by making them relatively unattractive, and into riskier assets. We aren’t sure $300 billion is enough, but this is a good start. –Ian Shepherdson, High Frequency Economics
- The largest benefit may come in the form of lower mortgage rates, which have fallen as a spread to Treasuries this year but remain about unchanged year-to-date in level terms. Mortgage refinancing activity is likely to be quite strong in the coming weeks. –Nomura Global Economics
- Even with energy prices having flattened The Fed’s Treasury purchases will absorb a very significant portion of the amount of gross issuance that we anticipate to occur over the next six months… The Fed’s announcement signals a clear intent to continue to drive mortgage rates lower and we expect them to meet this objective. This could represent a powerful source of stimulus for the household sector of the economy. In 2008, the average mortgage rate on the outstanding stock of loans was about 6.50%. So, if the Fed brings 30-yr fixed rate mortgages down to 4.50% and all homeowners are able refi, the aggregate permanent cash flow savings would be on the order of $200 billion per year. –David Greenlaw, Morgan Stanley...Many More
