The big news on the economic front is that the Federal Reserve has decided to launch a second round of “quantitative easing” – dubbed QE2.
The ultimate goal of QE2 is to pump more money into our financial system to avoid deflation. On Thursday, USA Today took a closer look at what this is likely to mean to you.
A weaker dollar
If the Fed starts circulating more dollars, then it stands to reason that each dollar with be worth less. If you’re a manufacturer, this is good news, as it makes US exports cheaper. Of course, a weak dollar also means that things like foreign oil imports may well end up costing more.
Low mortgage rates
Mortgage rates generally follow Treasury rates. Because the Fed is taking steps to keep Treasury rates low, mortgage rates are likewise expected to remain low.
What’s the opposite of deflation? Inflation! As long as it doesn’t spiral out of control, inflation will lift stocks, though it will punish bond investors. It will also punish retirees, or anyone else living on a fixed income.
Low savings rates
As long as interest rates remain low, there won’t be much interest to be made by keeping your money in a savings account. In fact, these low rates may contribute to improved stock performance as people flee low yielding bonds and perhaps start investing money that they might otherwise leave in the bank.