Some
commentators such as Mohamed El-Erian, the chief executive officer of Pacific
Investment Management (PIMCO), are of the view that the Federal Reserve’s
policy of massive asset purchases has added very little to economic growth. A study published
by the Federal Reserve Bank of Kansas City explores various channels through
which monetary pumping can grow the US economy. On this, the study indicates
that the Fed’s purchases of mortgage backed securities (MBS) can have a strong
beneficial effect. The study however suggests that with respect to the
purchases of Treasury Bonds the effect on the economy is minimal.
Now, as a
result of the Fed’s quantitative easing (QE) the long-term mortgage interest
rate fell from 6.32% in June 2008 to 3.35% by November 2012. Consequently, the
growth momentum of the housing market has had a strong response to this fall in
rates with the yearly rate of growth of housing starts jumping from minus 55%
in January 2009 to 42% by March 2013. The yearly rate of growth of new home
sales climbed from minus 46.4% in January 2009 to 35.5% by January 2013....ToRead More....
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