Why Is The Fed Using Quantitative Easing To Help Stimulate The Economy?

Quantitative easing (QE) is a new term for many investors.  The Federal Reserve (the Fed) started implementing QE in 2008 and it was the main topic of discussion on a recent episode of the Not Your Average Investor Show. In simple terms, quantitative easing is the term describing the Fed’s purchases of bonds and mortgage back securities.  The Fed actively participates in the economy to increase the money supply in an effort to stimulate our economy.  This has been done in addition to the more traditional measures of decreasing short-term interest rates to an effective rate of 0%.  When conventional monetary policy isn’t enough, QE is a more direct injection of capital which makes it less expensive for companies and individuals to borrow and, in turn, makes it easier for Americans to spend money. 

            It is important to realize just how much money the Fed has been putting into the economy since 2008. Since the start of Covid, the Fed has been pumping $120 billion dollars a month into the economy – through QE – by buying bonds and mortgage back securities. This high monthly stimulus has resulted in the Fed having $8.9 trillion dollars on their balance sheet. With the economy improving, the Fed announced in late 2021 that they were going to discontinue using quantitative easing, starting a process known as “tapering.”  They are rapidly cutting the program which will see bond and mortgage-backed security purchases decrease from $120 billion dollars a month to zero by March 2022.   In addition, the Fed announced that they are going to increase short-term interest rates 3 times in 2022.

An important question you should be asking is: what does this mean for interest rates going forward and how will it affect rental property investors?

The short answer is interest rates are going to go up quickly.  While the Fed’s announcement of multiple short-term rate hikes in 2022 made most of the headlines, the reduction of QE (also known as “tapering”), will actually have more of an influence on increasing rates for the long-term loans that investors use when investing in rental properties.

            With quantitative easing going away and long-term interest rates on the rise, this will affect your potential return on investment on your rental property. As interest rates increase, the monthly cost of your loan goes up which decreases your cash flow.

The way to optimize return on your investment in rental properties is by accessing this inexpensive long-term debt while rates remain low.  This means buying rental properties now rather than later.

            Working with a team of financial professionals to develop a strategic rental property investing plan has never been more important.  Our team here at JWB Real Estate Capital offers this service free of charge to all new and existing clients and we also have available inventory ready for purchase.  If you are ready to capitalize on lower interest rates while they last, schedule a call at www.chatwithjwb.com. Also, be sure to join the next Not Your Average Investor Show every Tuesday and Thursday at 12:30pm ET to learn more about rental property investing and all forms of alternative assets.

 

 

 

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