The Fed Has Spoken
The Federal Reserve Board has spoken by issuing a statement after their most recent meeting. But what did they say? From a market perspective, they said nothing. Rates will stay the same. The economy is improving from the severe downturn, but consumer consumption is restrained. This will make the recovery weak. We knew all of this going into the meeting. So, the question is, what does this mean to the markets? In reality, the markets hate surprises, so when the Fed does not give us any surprises, this is a good thing. This is true even when the news is bad. In this case the news was neutral.
If we look a bit deeper, we see that the Fed is moving into a balancing act stage. They must start to remove the stimulus from the equation before things get out of hand. But the economy and psyche of the markets is not strong enough to withstand even the news of such. Therefore, the Fed announced that they will continue purchases of mortgage-backed securities and Treasuries into the first quarter even though they were scheduled to end by the end of the year. This gives the Fed the flexibility to wind down purchases without making an announcement that the program is over. Recoveries are more about psychology than economics. If the markets feel good and the consumer feels good, recoveries become stronger. The markets have felt good for several months now as we have witnessed a strong stock rally without upsetting the bond markets. But we still have not succeeded in making the consumer feel good and the Fed recognizes that. Expect the tightrope to continue and any tightening language by the Fed to be introduced very slowly.
Best Regards,
Kurt Galitski
The Kurt Real Estate Group
Weichman Realtors
714-957-6677