Money Supply And Interest Rates
In a prior posts, we asked whether the Fed is serious about fighting inflation. The Federal Reserve notoriously was buying $120 billion per month in bonds and mortgages to prop up excess government spending, keep interest rates artificially low, and boost the economy. Unfortunately, the geniuses at the Fed had no idea when it was too much. They are the prime cause (along with excess government spending) of the current inflation. The Fed announced a plan to pull back on its incompetent money policy. It finally began to slow its purchases since the money supply and interest rates are intertwined. IN late 2021, money supply jumped an extra $440 billion floating around bidding up prices. Some of that $440 billion is chasing housing and propping up prices. Causing inflation.
The Fed began buying less bonds and mortgage in December after their November meeting. Or so they said. They still appeared to buy $120 billion in January. They slowed it February. This week the raised interest rates (March 16) and supposedly ended asset purchases. It swore off its addiction. But (surprise!) then the Fed turned around and bought another $44 Billion of assets this week alone! In the mean time, inflation numbers every month continue to set 40 year highs. Likely, the Fed will announce a 1/2% (0.50%) The Fed is still behind. As such, look for no relief in the inflation rate in the near future. See our more detailed post on inflation, money supply and interest rates here.
Pick up a copy of Winning Mortgage, Winning Home to learn how best to play the home purchase and home finance market.