Goodbye QE 2, Is the Window Closing on Low Interest Rates?

Today is the last day of the nick named QE2, (Quantitative Easing.) This nick name stands for the purchase of Treasury instruments by the FED in order to keep interest rates low.

As the FED finished QE2’s sibling, QE1, last year, interest rates actually fell as there was much talk of a double dip recession.

So here we are again, right back where we started, about a year later, today being the last day of the FED purchases. This time, at least for the moment, rates are headed higher.

The following chart most closely speaks to longer term mortgage rates with the line representing interest rates i.e as the line goes up, rates are rising and bond prices falling.

We are not predicting dramatic changes or over the top inflation and price movement, for us, it is interesting to watch rates as the character has changed somewhat from just a year ago. Higher rates might lead to a stronger dollar, which might lead to lower oil prices.

Logically if rates are gradually rising, this would bode negatively against those in the major economic slowdown camp.

While much of this sounds like the “Dem Bones” nursery rhyme, “The Foot Bone is connected to the Ankle Bone…..” we thought you  might find a little of the economic anatomy we are watching interesting as well.

Have a Super Day!

JK

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