Fed Forecasts End of Monetary Easing, Sending Markets Into a Tailspin

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Low interest rates have contributed to a powerful rally on Wall Street, but Bernanke's announcement, the party may be over. Credit: Arundejoe, at Wikimedia Commons.

Low interest rates have contributed to a powerful rally on Wall Street, but with Bernanke’s announcement, the party may be over. Credit: Arundejoe

U.S. Money: What’s Next?

The one sure thing about the economy is that there is no sure thing, especially in the wake of the most destructive forces to strike the U.S. economy since the 1930’s. Unemployment is still elevated, although signs of strength are returning to the  labor market. The housing market has rebounded, and other positive news continues to come out, including a recovery in the manufacturing sector.

Japan’s economy has been in a near-permanent state of low growth since the 1990’s, when its own version of asset bubbles imploded. Interest rates were held down for an extended period, a strategy that many economists believe ultimately made their fundamental problems worse.

Clearly, the Fed does not want to emulate the questionable policy decisions Japan made during that period, certainly no more than some believe it already has. With easing likely to end next year, expect the yield curve to steepen as long-term rates are allowed to rise.

The good news: a positively-sloped yield curve typically portends a strong economy. The bad news? If you haven’t refinanced by now, you’d better hurry.

 Resources

BrainyQuotes. End Quotes (2013). Accessed on June 26, 2013.

Miller, Rich and Zumbrun, Joshua. Fed Monetary Course Hard to Undo for Bernanke Successor: Economy (2013). Bloomberg. Accessed on June 26, 2013.

U.S. Department of Treasury. Daily Treasury Yield Curve Rates (2013). Accessed on June 26, 2013.

Zumbrun, Joshua and Kearns, Jeff. Fed Maintains $85 Billion Pace of Purchases as Growth Pauses (2013). Bloomberg. Accessed on June 26, 2013.

Prial, Dustan. Bernanke Offers Possible Timetable for Tapering (2013). Fox Business. Accessed on June 26, 2013.

Kemp, John. Quantitative easing has begun (2008). Reuters. Accessed on June 26, 2013.

Freddie Mac. 30-Year Fixed-Rate Mortgages Since 1971 (2013). Accessed on June 26, 2013.

Yahoo Finance. Dow Jones Industrial Average (2013). Accessed on June 26, 2013.

Green, Dan. Did You Wait Too Long to Refinance? Mortgage Rates Leap to 3.81% (2013). The Mortgage Reports. Accessed on June 26, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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