A two-year financial experiment comes to an end in the new week. The Federal Reserve winds down its monthly asset purchases known as QE3 — its third round of quantitative easing.
Since September 2012, the central bank has committed billions of dollars buying long-term government bonds and bonds backed by home mortgages. The goal was to push down and keep down long-term interest rates for borrowers, especially homebuyers and homeowners.
It mostly worked when viewed through the narrow prism of mortgage rates. When the project began, the average 30-year fixed-rate mortgage rate was 3.6 percent, according to Freddie Mac. Last week, it was just below four percent. Borrowing costs for qualified buyers have remained historically low. That has helped the housing market stabilize. The median price of an existing home has jumped 18 percent.
The ripple effect has lifted consumer confidence and spending, even though wage growth has been stagnant. The national unemployment rate has fallen to below 6percent. And, oh yeah, the S&P 500 stock index is 34 percent higher than when the Federal Reserve embarked on this journey.
The decision-makers at the Federal Reserve are not worried about the recent volatility in the stock market. That’s all noise. Instead, the inevitable end to the agency’s economic experiment is a quiet admission of assurance by the central bank in the economy.
Financial journalist Tom Hudson hosts The Sunshine Economy on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.