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Does the Fed’s latest move matter?

By Greg McBride, CFA · Bankrate.com
Wednesday, August 11, 2010
Posted: 2 pm ET

Yesterday the Federal Reserve took a symbolic step in the direction of more accommodative financial conditions by announcing that they will reinvest proceeds from maturing bonds back into Treasury securities. This will keep money in the financial system and help keep a lid on long-term interest rates, such as mortgages.

But this is a small measure -- think billions, not trillions -- and more than anything, it conveys the message that the FOMC won't sit by and watch the recovery dissipate without doing something. This could be the first move, with more subsequent action to come if the economy starts to flame out altogether.

Does this move help consumers? Only a little. Yes, it will help keep mortgage rates low. But it won't change the reality holding back prospective mortgage and home loan borrowers, such as worries over job prospects, lack of home equity and insufficient money for a down payment. Bigger picture, it does show that the Fed is a long way from raising interest rates and the significance of that to consumers is that the window of opportunity to pay down debt and refinance mortgages remains wide open.

Listen to more in this radio segment I did with WNYC's Amy Eddings yesterday following the Fed announcement. The interview starts at the 1:07 mark.

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