Simply quantitative easing is putting more money into the streets to stimulate the economy. The more money in circulation, the more people buy goods and services. As a result, the industries will produce more and hire more workers which in turn will reduce unemployment.
Widely expected QE II is finally announced. Federal Reserve will be buying more government bonds and mortgage backed securities. The amount of Federal Reserve spending will depend on many things and the eventual outlay and its effects will be seen in coming months. The Fed controls short term interest rates, like the federal funds rate which is the rate banks charge each other for overnight funds. But long term interest rates such as the fixed rate for fifteen to thirty year mortgages are controlled by market forces.
Surely Federal Reserve can influence these rates by buying mortgage backed securities. This will create a strong demand for these types of products that will push up the price and push down the yields. Hopefully the result will be that mortgage rates will fall down further increasing refinance applications and helping the housing market.
Initial reactions were that the mortgage rates have actually risen slightly. The simple explanation for this move could be that the market was anticipating quantitative easing by the Fed and it looks like that they were expecting more than what came out. Experts might suspect that the Federal Reserve giving a signal that they are there to boost the economy, but they might be reluctant to open the money gates easily. That is why there are wide speculations as to how much eventually the Fed will shell out. Unfortunately, it seems that billions of dollars hardly make a dent in the current economy; it might be time to be talking in trillions.
Another concern might as well be the inflationary effect of quantitative easing. That would pressure the mortgage rates upwards. This will be seen in the coming months and years.
Depending on your risk attitude, you might determine what you are going to do with refinancing your mortgage. The uncertainty might be worrying you and it might be time for you to get some certainty in your life with a fixed rates mortgage refinance. Alternatively, you might be loving it and wanting to see how far down the rates might go before you deem it to be a worthy rate to refinance. There are various mortgage products out there that you might want to have a look at in the meantime. You might even want to determine the most competitive lenders in your state well ahead of an intended refinance application.
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