After six years in existence, the Federal Reserve announced last week that it was officially ending its quantitative easing bond buying program, QE3. QE3 was one of the stimulus measures that the Federal Reserve implemented after the financial crisis to help boost the economy and expand the labor market. The program was supposed to do this by lowering long-term interest rates, which in turn would make it less expensive for businesses to invest and expand. Although the merits of QE3 will be debated by economists for years to come, the program appears to have been effective in achieving its goal, as interest rates were at or near historic lows for a number of years. Continued low interest rates certainly played a role in the growth of the senior housing industry and contributed to the record amount of deal activity experienced in recent years. Accordingly, senior housing providers and investors who are seeking capital to purchase additional assets while rates remain low should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different financing options that it offers for acquisitions and other purposes as well.
QE3’s Economic Impact
The Federal Reserve began buying bonds under its quantitative easing program in November 2008. Since that time, the unemployment rate has fallen precipitously to 5.9 percent, and the total number of housing starts roughly doubled as well, signaling improvements in the real estate market. However, the quantitative easing program also increased the assets on the Fed’s balance sheet considerably, from less than $1 trillion before it began, to more than $4.5 trillion today. Furthermore, even though QE3 is ending, the Fed will continue to use the revenues that are generated from the bonds it already holds to replace maturing bonds, meaning that the Fed’s balance sheet will continue to remain large for the time being. Some analysts also believe that this might create a slight dampening effect on long-term interest rates.
The vote by the Federal Reserve’s Open Market Committee to end its QE3 program was nearly unanimous. The sole dissenter was Narayana Kocherlakota, the President of the Federal Reserve Bank of Minneapolis. The other Committee members felt that the economy and labor market have improved to the point where QE3 is no longer necessary. However, the Committee did decide to keep its other primary stimulus measure in place by voting to keep the federal funds rate at its current near-zero level. Fed watchers were not surprised by this, as the consensus opinion among them is that the Fed will refrain from raising interest rates until sometime during the middle of 2015. Until this happens, and the cost of borrowing increases markedly, senior housing participants who are seeking capital for acquisitions or other purposes should continue to look to Cambridge Realty Capital for their financing needs.