Federal Reserve Expected To End QE3 On October 29

The final round of quantitative easing is expected to finally come to an end at the conclusion of a two day summit this week.  The Federal Reserve enacted quantitative easing or QE3 at the height of the recession to stabilize as well as stimulate the economy, but has slowly backed away from stimulus spending over the last two years.

The basis of QE3 involved the Fed buying back billions of dollars in mortgage backed securities that were resold to investors.  This program drove down pressure on the US housing market as the central bank also slashed the Federal Funds interest rate to record lows, subsequently driving down mortgage rates issued by banks.

As the financial system struggled to survive the recession, QE3 provided the necessary investments to keep the country afloat as the private sector withdrew funds from the economy.  However, the government warned American homeowners that QE3 could not last forever, wisely and publicly choosing to cut down on stimulus spending over a two year period to ease the country towards a period of self sustaining growth.

The Federal Open Market Committee is expected to announce the end of QE3 by using positive economic updates to help make their case.  The economy has been prepared for the end of QE3, with capital investments finally shouldering the weight to help boost employment and drive growth.

Investors are prepared for the end of QE3, with the chief North American economist of Capital Economics, one of the world’s leading economic research forums, stating that the end of stimulus spending is already priced into government bonds.  If the markets agree with this sentiment, the end of QE3 should have little, if any negative impact on the overall economy.

There may be a slight bounce in mortgage rates over the short term as lenders adjust to the change.  But rates are not expected to rise in any significant way as the Fed has signaled that the Federal Funds Rate will remain near zero percent until at least the third quarter of 2015 – placing no additional costs onto mortgage lenders in the short term.

If all goes as expected, the end of the FOMC meeting on Wednesday will at last turn the page on one of the most important chapters in US history.