This Tuesday, Chairman of the Federal Reserve Ben Bernanke told Congress that the Fed’s low interest rates will continue. The implications of this announcement are vast. The real estate market, which is closely linked to interest rates will benefit from low interest-rate policies that allow developers to borrow at lower rates. This promotes the construction of new real estate nationwide.
In his statement, Ben Bernanke acknowledged that the Fed’s program to purchase $85 billion in U.S. Treasury bills and mortgage bonds each and every month will continue. Many economists argue that such practices will lead to increased inflation or leave investors uncertain. However, the Fed had decided to prioritize keeping interest rates low as there is little evidence that inflation has recently increased or that investment has decreased. Due to those risks, some policymakers have called on the Fed to decrease the magnitude of said program. This will be the third round of quantitative easing, which aims to strengthen the housing and automotive sectors.
“Keeping longer-term interest rates low has helped spark recovery in the housing market and led to increased sales and production of automobiles and other durable goods,” Bernanke said.
As ABG Commercial reported last week, January’s housing figures are strong. The sale of new homes has jumped, home prices gradually rose over the month of December, and inventories are being replenished by new construction.
Ben Bernanke also commented on the budget policy. Bernanke urged Congress not to partake in automatic spending cuts (which begin Friday) but instead replace them with gradual reductions in the budget.