Fed's Announcement Could Impact Mortgage Rates, Retirement Funds
After a policy meeting on Wednesday, the Federal Reserve said it has no set timetable for reducing its stimulus. It all depends on how the economy fares and what happens with the unemployment rate. It has set a threshold of 6.5 percent unemployment for when it would ease its stimulus program of buying $85 billion in bonds each month.
Right now, the Fed's concern is that mortgage rates are going up -- as well as the impending showdown over government cuts it said is keeping the economy from growing. Fed chairman, Ben Bernanke, said the move is key to keep mortgage rates down and make sure home buying stays affordable.
Bernanke said he also wants to see more evidence that the job market is improving.
Erik Brown, a Realtor with RE/Max, said the short-term impact of the Fed's delay means that borrowing money to buy a home will get easier, and you'll see more folks re-financing -- at least for now. But higher rates still loom, so he said buyers and sellers should seal the deal soon.
"They're going to want to move relatively quickly. They're going to want to take advantage of the rates that are there today," Brown said.
Another big potential effect is on your 401(k). Wednesday's news sent stocks soaring. The Dow closed at a record high after gaining 147 points.
Financial experts said most savers should just stick with their long-term financial plan -- don't change course based on the news of the day. But Scott Oeth, a certified financial planner with Cahill Financial Advisors, said people who are close to retirement or already retired should take a closer look at their 401(k)s -- specifically, their bonds.
Oeth said the pause in drawing down the stimulus gives investors more time to tweak their portfolios, but that interest rates are likely to rise soon, which will decrease the value of long-term bonds.
"Looking at their overall portfolio and making sure they have enough set aside in holdings that should maintain their value no matter what's happening in the stock or bond market," Oeth said.
Some economists say in the long-term, we could all be affected by the stimulus. It increases the money supply, which tends to fuel the flames of inflation, pushing up prices for things like food and gas. But the Fed released its own forecast on Wednesday, which predicts inflation will stay near its target for the next few years.