Is it the Market that Reacts to the Feds?

I keep hearing this morning (I listen to Bloomberg in the car) that we were all fooled by the Feds decision to continue it’s $80 billion per month asset purchasing program. Really, were we all fooled? I said in our latest developers meeting (August) that I don’t see them tapering in September. In my opinion, there were too many signs throughout the 3rd quarter to assume that would be the case. The unemployment rate has been pretty stable with modest declines, inflation isn’t increasing, estimates for GDP growth have been lowering going forward and the rise in interest rates slowed the Real Estate market down.

It seems early summer comments from the Fed suggesting that tapering was a possibility in 2013 slowed the economy down. Treasury yields spiked 100 basis points, mortgage rates increased and bond prices lowered, increasing their yield. What followed was a 5 year low in mortgage applications and lowering stock indexes.

These economical signs along with a static unemployment rate really foreshadowed the Fed’s inevitable decision yesterday: Continue the current stimulus program with quantitative easing, continue near zero interest rates and hold this pace until we see inflation increase to 2%, unemployment rates to drop to 6.5% and an economy that can hold itself up.

The stock market has been reacting to the Feds, but in reality Bernanke has stated all along that the Fed policy will react to the market place. The Fed’s decision shouldn’t have come as a surprise. Just as the market highs that followed shouldn’t have either. 1375158_445154905598164_1236681702_n

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