The Fed Buying Treasuries To Stimulate the Economy: Will it Work?

The Federal Reserve announced a bold plan Wednesday to try to invigorate the economy by buying $600 billion more in Treasury bonds. The Fed said it would buy about $75 billion a month in long-term government bonds through the middle of 2011 to further drive down interest rates on mortgages and other debt.

This is in addition to an expected $250 billion to $300 billion in Fed purchases over the same period from reinvesting proceeds from its mortgage portfolio.

The idea is for cheaper loans to get people to spend more and stimulate hiring. The Fed said it will monitor whether adjustments are needed depending on how the economy is performing.

Some worry the Fed action will do little to boost the economy because interest rates are already historically low. Others fear the bond purchases could drive inflation too high over the long term and unleash speculative buying in assets like stocks.

As of October 28, the 30-year fixed-rate mortgage (FRM) averaged 4.23% with an
average 0.8 point, up from two weeks ago when it averaged 4.21%. Last year at
that time, the 30-year FRM averaged 5.03%.
 
Fifteen-year FRM last week averaged 3.66% with an average 0.7 point , up from two weeks ago when it averaged 3.64%. A year ago at that time, the 15-year FRM
averaged 4.46%.
 
Five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.41%last week, with an average 0.6 point , down from two weeks ago when it  averaged 3.45%. A year ago, the 5-year ARM averaged 4.42%. The 5-year ARM has not been lower since Freddie Mac started tracking it in January 2005.
 
One-year Treasury-indexed ARM averaged 3.30% last week with an average 0.7 point, unchanged from two weeks ago. At that time last year, the 1-year ARM averaged 4.57%. The 1-year ARM ties last week's low.

*Numbers based on Freddie Mac's Primary Mortgage Market Survey (PMMS), which surveys 125 lenders each week on the rates and points for their most popular mortgage products.

For more information, visit www.freddiemac.com/pmm

Information courtesy of Lisa Sherman, Coldwell Banker Residential & Commercial Brokerage. www.LisaShermanHomes.com