New Rules from the Fed. Quantitative Easing to End Soon

The FED Chairman announced a future reduction of bond purchasing and the ultimate ending of Quantitative Easing. An end to excess monetary liquidity. Interest rates surged as stocks fell.


Scottsdale, AZ -- (SBWIRE) -- 06/24/2013 -- Last week FED Chairman Bernanke said that the FED would start to reduced bond purchases, quantitative easing, later this year and end the program sometime next year. There had been talk of a tapering in the news for several weeks. This was a clear statement that Fed policy is shifting. The former target of 6.5% for unemployment and under 2% inflation appears to be less important now. Bernanke mentioned an improving economy and the possibility of 3.5% growth for the economy. This shift in Fed speak is surprising and comes only a short time after reaffirming the prior landmark. Yes we are seeing a small improvement in economic activity, however unemployment continues to be in the mid 7% range. My opinion is that economic growth of 2% to 2.5% is more likely at this time.

The real question is what has caused this shift in FED policy. The answer, in my opinion, is that the FED has come to the realization that there is not going to be any fiscal policy changes from the Congress to stimulate the economy. Monetary policy alone can only do so much to grow the economy. Without a stimulative fiscal policy, pump priming spending by the government. After a time monetary easiness can begin to have a deleterious effect. We may be getting close to that point. Therefor the shift by the Fed. It is a recognition that excess liquidity has been going into financial assets and not into productive assets that increase economic activity and employment. The building of a possible liquidity balloon.

Last week the 10 year Treasury, the bench mark for commercial mortgage lending, went over 2.5%. That was the highest rate in almost two years. The question is what we can expect in the months ahead? This should not be a surprise. We have been saying that the low-interest rates of the last year or more would not continue on indefinitely. However, we do not think that the interest rate market will run away. The FED can not allow things to get out of “control” too much. Yes, we do not expect that we will see the lows again, but we do not expect that things will skyrocket. We are looking to an orderly increase in rates over time. That is the trend in rates will be up in a slow controlled environment. We do expect some retracing in rates over the short-term. What this means to property owners is that you should not delay financing. The direction of the market for interest rates is up and waiting is not prudent said Victor Weintraub, President of First Charter Financial Corporation

So far as other financial assets are concerned, we expect that the direction is down for now for stocks and other financial assets. These have been reeling from the realization by the financial press and some investors that the normal expectations are now changing. It will take real economic growth to stimulate financial assets.

About First Charter Financial Corporation
A leading independent mortgage company conducting business on a nation wide basis. We specialize in arranging financing for commercial properties throughout the US. The projects that we handle include office, retail, multifamily, hospitality and specialty properties. We arrange loans in amounts ranging from a minimum of two million dollars up to as large as 100 million dollars. We maintain relationships with large and small insurance companies, retirement and investment funds, regional, national and multinational banks and we are very active with capital markets funding sources. Victor Weintraub, President of First Charter Financial, is a noted economist and has been in the mortgage business for over forty years. Contact First Charter Financial with your commercial mortgage needs. Email Telephone (480) 970 0990.