Fed to Go Ahead with QE2

Highlights

  • The benefit for consumers comes in the way the Fed gives this cash to banks.
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The plan is to stimulate growth by a consistent addition of cash throughout next year.

It has been long anticipated and long expected, but now the time has arrived. The Fed’s Open Market Committee met last week and has decided to go ahead with another influx of funds to help stimulate our economy. They’ve dubbed the new campaign “QE2.” It means that they will begin a second round of something known as Quantitative Easing.

The strategy is a pretty simple one. Give cash to lenders by buying products they own in hopes that this will translate into more cash being lent to both consumers and business owners.

So, How do I Benefit?

The benefit for consumers comes in the way the Fed gives this cash to banks. Basically, they will give banks cash by buying Treasuries and Treasury securities from them. It’s kind of like exchanging money for an IOU. The result is that banks are encouraged to spend the cash (or put it back into the system) rather than hold onto it. This means more opportunity for anyone looking to grab some of that cash.

Not an Overnight Process

While this is good news for consumers, do not expect that the full effects of the influx will be felt soon.   The plan is to stimulate growth by a consistent addition of cash throughout next year.  Over the next 8 months the program will add over $600 billion to the system. This will help to keep interest rates low throughout this period as it did during the first round of buying which was “QE1.”

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