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How will the Fed's newly announced plan impact interest rates long term?

With the Fed buying 80bil in bonds per month throughout the rest of 2012, and 40b a month indefintely, what impact do you expect this to have long term (next 18 - 24 months)

Sep 13, 2012 by Timothy from Grand Rapids Charter Township, MI in  |  Flag
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Eric Level 17

With the Fed doing asset purchases aimed at Mortgage Backed Securities it is trying to drive down long term interest rates so that borrowers can access cheaper credit mainly to try to prop up the housing market, which could lead to more jobs. That premise may prove difficult given the fact that these purchases also tend to impact riskier assets, such as stocks and commodities. With stocks hitting new highs it is possible we will see a movement away from government bonds and therefore an increase in long term rates. We saw that today with the 30 yr Bond almost hitting 3% for the first time in the last six months. Time will only tell where long term rates will be, but at some point rates will need to rise.

Comment   |  Flag   |  Sep 13, 2012 from Denver, CO

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Alex Bentley Level 18

Buying by the Fed lowers interest rates. At some point rates will rise, and have already started to do so. But that does not mean you shouldn't own bonds. Bonds act as a hedge against your stock holdings. If there is a 30% drop in your stock holdings, you will have bonds to cushion the blow and allow you to rebalance your stock holdings (buying low). I would also encourage you to re-examine your definition of long term. To me long term is 10-30 years. Buying and holding over the long term, keeping expenses and turnover low, along with rebalancing annually is a great way to invest.

Comment   |  Flag   |  Aug 15, 2013 from Pacific Palisades, CA

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