The Federal Reserve announced what is being called QE3 – which means the third round of quantitative easing – in hopes of improving the American economy.
Quantitative easing is where the Fed wants to lower the cost of borrowing debt in some manner in order to push interest rates even lower than they are.
QE1 and QE2 helped push and keep mortgage rates at historic lows. Now QE3 is going to kick in to the tune of $40 billion per month in purchased mortgage-backed securities.
There is a real risk of inflation and you are essentially increasing the money supply by that amount each month.
It will be interesting to see if the plan works — the stock market has liked it thus far, but will it work long term?