The Fed’s Reasons Not To Taper QE

The Fed’s Excuses Not To Taper Quantitative Easing

Podcast Summary

Ryan reviews the recent decision of the Fed to keep their interest rate policy the same along with keeping quantitative easing in place. Ryan predicts interest rates would trade within a tight range and notes that the Fed artificially manipulates rates lowers.

Louis notes that the Fed keeps the rates within a tight range. Louis notes that the Fed always pretends that they are not going to continue QE even though they have been doing QE for five years.

Louis notes that they have done it again in the October meeting giving people the impression that perhaps the Fed might taper in December. Louis notes that the Fed gives a road map to their future excuses as why they won’t taper or stop QE, including:

-the economy is not recovering as much as they projected,
-the labor market is not improving,
-the inflation rate is not high enough,
-the housing market has stalled, and
they don’t like fiscal policy.

Louis notes that the Fed will continue QE because they have to to keep interest rates low or the economy will crash, and the cost of US government borrowing will become too expensive and the banks require it to keep their balance sheets healthy.

Ryan notes that if the Fed cuts QE rates would rise irrespective of whether they keep the Fed funds rate low. Ryan notes that the Fed will probably have to increase QE.

Ryan notes that few people are able to take advantage of the current low interest rates.

Ryan discusses the types of loans available to potential home buyers.

Louis notes that the Federal reserve’s artificially low interest rate policies are transferring money up to the top and to the real estate and stock markets and notes the low participation rate of retail home buyers. Louis notes in the last housing boom far more people were buying homes and experiencing price appreciation.Louis notes in contrast that a good portion of today’s home sales are being made to institutional investors and to people with good jobs, lots of cash and great credit.

Louis notes that the Fed has printed $4 trillion to get a few hundred billion dollars in GDP growth and some price appreciation in the real estate market. Louis notes that the Fed wants to keep low rates to continue the gains made in home prices and will probably need to increase QE to accomplish that.

Louis notes it may make sense to buy a home with a low long term interest rate mortgage.

Louis discusses how some countries are making arrangements to reduce their dollar holdings and notes that the Fed won’t have the same power to manipulate interest rates and if they lose the ability to print their way out of trouble or into prosperity. That’s when it’s time for a new monetary system