What QE3 Could Mean for Borrowers

On Thursday, the U.S. Federal Reserve Board announced that it would engage in another round of what is known as quantitative easing. But what that might mean for consumers may not be totally clear.

The Federal Open Market Committee recently agreed to increase the amount of money in the economy by purchasing $40 billion worth of mortgage-backed securities per month, until there is a significant uptick in hiring across the country, according to a report from the Fed. This quantitative easing – known as QE3, because it is the third time the Fed has tried to buy bonds in an effort to stimulate economic growth – could have a major impact not only on consumers who are still looking for jobs, as it will allow hiring to theoretically increase, but those who are seeking both short- and long-term financing as well.

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The Fed believes that increasing its longer-term securities holdings by roughly $85 billion per month, it could serve to drive down long-term interest rates, the report said. Further, this could also help to improve the housing sector, and generally make the broader economy healthier moving forward. In addition, if the move doesn’t have the desired effect on the job market, which the Fed is trying to improve as its first priority, other, potentially stimulating action might be in the cards as well.

“The Committee will closely monitor incoming information on economic and financial developments in coming months,” the report said. “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

And even as the Fed tries to drive down long-term interest rates, it also noted that it will keep those for short-term financing at or near their current low levels until at least the middle of 2015.

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Low interest rates on many types of financing, both short- and long-term could help consumers of many financial backgrounds to improve their ability to borrow, and do so affordably. That, in turn, could lead to improvements in a number of credit markets, as well as help millions of households’ bottom lines.

Image: epicharmus, via Flickr