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Fed Programs Will Stop Further Decay, but Unlikely to Cause Full Recovery

The Daily Transcript -- At a recent real estate roundtable, the discussion turned to the Federal Reserve’s mid-September announcement of a third round of quantitative easing, better known as QE3, and its likely impact on commercial real estate markets.

QE3 involves the Fed’s commitment to buy $40 billion of residential mortgage-backed securities monthly for the foreseeable future, to reduce long-term interest rates generally — and specifically in MBS markets — and also to stimulate job creation and economic recovery. “Operation Twist” is a Fed program designed to lengthen the average maturity of the Fed’s investment portfolio of U.S. Treasury securities, essentially by selling shorter-term Treasurys — putting slight upward pressure on short-term interest rates — and reinvesting the proceeds in longer-term Treasury securities, thereby adding downward pressure on longer-term interest rates on Treasurys and other securities considered to be good alternatives to Treasurys. (Full Story)