bailout effects on interest rates

Discussion in 'Economics' started by jrcase, Sep 9, 2008.

  1. jrcase


    I am trying to understand the implications of this huge bailout of Freddie and Fannie, specifically on interest rates. I can see the treasuries tanking (yields climbing) because of the perception that the US Government is less secure.... too much debt. But that did not happen, yet. I can also see inflation skyrocketing because of the money pump.... that has not happened either, yet.

    What are your opinions? Where will rates go? Up or down in the next few months?
  2. mortgage rates shot down a full half point on the news yesterday
  3. Theoretically the bailout would mean more money is printed, and with more money available, rates would go down.

    But the market is still perceiving the economy as weak, thus driving bond yields down.

    When some recovery is evident, investors will flee from bonds into stocks and other investments, driving interest rates up, even if the Fed is printing money like mad.