So does this mean the proverbial corner has been officially turned and we're on our way out of this troubling mix of slow economic growth and persistently high unemployment? Not so fast. Despite the nice job growth report, the official unemployment rate is still stuck at 9.6 percent, and just yesterday came news that initial jobless claims were up, not down. Moreover, the QE2 gambit is a total experiment that requires an almost Rube Goldberg-esqe confluence of factors to seamlessly come together to have the desired long-term effect of boosting employment without triggering high inflation. (For a great walk through the maze that is QE2, check out my colleague Jill Schlesinger's 7 Questions about the Fed's $600 Billion Spending Spree). And the fact that Bernanke penned an op-ed piece in yesterday's Washington Post explaining QE2 was an interesting bit of salesmanship -- after the fact -- for an institution that doesn't typically spend a whole lot of time explaining itself. You'd think if the Fed was confident about what it was doing, it would stick to its normal taciturn ways.
While we're waiting to see if the cash infusions of QE2 will in fact be the tipping point that finally triggers banks to lend, employers to hire and consumers to spend, here's how the policy gambit could have an immediate impact on your household finances:
Refinancing may get even cheaper. If, as expected, the Fed's buying of bonds pushes long-term rates down even more, we could see the 30-year fixed fall even lower than the current 4.25 percent level. And have you noticed the 15-year is about 3.7 percent? The one sticking point here is that you typically need 20 percent equity to be able to qualify for a refi these days, a potential problem for many would-be refinancers. One possible strategy to consider: If you're planning on staying put in that home, buy your way into 20 percent equity with a cash-in refinance.
Fixed income gets even dicier. Retirees looking to earn some income off of classic savings and bonds are still out of luck. CDs and bond rates aren't going anywhere. That's in fact a central piece of the Fed's gambit. In addition to keeping rates low to spur borrowing, it wants to push everyone -- corporations and consumers -- into the stock market on the theory that a rising market will make us all feel good and become some sort of virtuous cycle that spurs economic growth. But that's little help for retirees who can't afford to make massive bets on stocks. There's no real good news here, but you can make the most of this ridiculously low-rate environment by following Moneywatch's Allan Roth's tips for finding the best CD rates, including a unique 5-year CD offered by Ally bank.
Stocks may benefit (at least over the short-term). As noted earlier, the Fed would like nothing more than for a stock market rally to trigger a healthy new round of the wealth effect: we see our 401(k)s and 529s doing better so we exhale and start spending more money. And in his recent 3rd quarter letter, esteemed strategist Jeremy Grantham of GMO concedes the Fed policy will probably work in the short-term: "I expect that the bottom line will come down to short rates. Surely they will stay low for the entire Year 3 [of the presidential election cycle] And, if so, the 'line of least resistance' is for the market to go up and for risk to flourish."
But that's just the short term. Long term, Grantham is worried that the Fed policy will create more problems than solutions, a sentiment shared by many others.
Not that you were planning on piling up on stocks anytime soon, but if we do see a heated market rally beyond what has already occurred since the summer, just keep reminding yourself, perhaps by re-reading Grantham's letter, that longer-term, this could all come back to haunt us.
More on MoneyWatch:
7 Questions about the Fed's $600 Billion Spending Spree
$600 Billion Fed Move Targets New Jobs but Risks Inflation
QE2 Should Be Good for Gold
The Best CD's: Where to Find Them
Where to Stash Your Cash