How Fed's pullback of stimulus could affect you
By Paul Wiseman THE ASSOCIATED PRESS
WASHINGTON — Consumers will likely pay more for home loans. Savers may earn a few more dollars on CDs and Treasury bonds. Banks could profit. Investors may get squeezed.
The Federal Reserve's move Wednesday to slow its stimulus will ripple through the global economy. But exactly how it will affect people and businesses depends on who you are.
The drop in the Fed's monthly bond purchases from $85 billion to $75 billion is expected to lead to higher long-term borrowing rates. Which means loan rates could tick up, though no one knows by how much.
The move could also weigh on stock markets from the United States to Asia, although the early response from investors was surprisingly positive.
Just keep in mind: The impact of the Fed's action is hard to predict. It will be blunted by these factors:
•It's a very slight reduction. Economists had expected the Fed's monthly purchases to be cut more than they were.
•While it will buy slightly fewer bonds, the Fed expects to keep its key short-term rate at a record low ''well past'' the time unemployment dips below 6.5 percent from today's 7 percent. Many short-term loans will remain cheap. ''They have tried to sugarcoat the pill,'' says Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.
•The Fed thinks the economy is finally improving consistently. An economy that can sustain its strength can withstand higher borrowing rates.
All of which suggests that while Wednesday's action marked the beginning of the end of ultra-low interest rates, the pain may not be very severe.
The Fed's bond purchases, begun in the fall of 2012, were meant to stimulate the economy. The purchases were designed to lower mortgage and other loan rates, lead investors to shift out of low-yielding bonds and into stocks and prod consumers and businesses to borrow and spend.
Here's a look at the likely effects of the Fed's decision:
loans
Mortgage rates have already risen in anticipation of reduced Fed bond purchases: The average on a 30-year U.S. fixed-rate mortgage has increased a full percentage point this year to 4.47 percent. Analysts say it will likely head higher now.
''Homebuyers aren't going to be happy,'' says Ellen Haberle, an economist at online real-estate brokerage Redfin. ''In the weeks ahead, mortgage rates are likely to reach or exceed 5 percent.''
An improving economy means stronger sales for businesses, but they, too, may have to pay more for loans. Auto, student and credit card loan rates are unlikely to change much. They're tied to the short-term rates the Fed is leaving alone.
Savers
Savers have suffered from the Fed's low-interest rate policy. Wednesday's move could offer some relief to people who keep money in three- and four-year CDs. But it probably won't mean a big jump from, say, the average 0.48 percent rate on 3-year CDs.
''They're starting from such a low point, it's not going to be nearly enough to make three- and four-year CDs anywhere near compelling,'' McBride says.
By keeping short-term rates near zero, the Fed move does nothing for people with money in savings accounts and very short-term CDs.
Banks
Banks earn money from the difference between the short-term rates they pay depositors and the longer-term rates they charge consumers and businesses. The gap reached a five-year low earlier this year. But it's likely to widen as longer-term rates rise and short-term rates stay fixed. Bank profits should rise as a result.
Financial markets
The Fed intended its bond purchases, in part, to push bond yields so low that investors would move money into stocks, thereby driving up share prices. Since mid-November 2012, the Dow Jones industrial average has surged 28 percent.
Many Wall Street analysts feared stocks would plummet once the Fed announced a pullback in its bond buying. On Wednesday, the opposite occurred: The Dow rocketed 293 points. Investors appeared to focus more on the good news (the economy is improving) than the bad (the easy-money days may be ending).
''As the tapering continues, there will be less liquidity going into the stock market,'' and the rally will either slow or end entirely, says Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.
Emerging markets
Over the past year, the super-low U.S. rates had led investors to seek higher-yielding investments in emerging markets. Last summer and fall, speculation about a slowdown in the Fed's stimulus sent stocks tumbling in the developing world.
Indonesia's market has sunk nearly 19 percent since investors began anticipating the Fed move in May. Stocks in Thailand are down 18 percent. Without Fed policy driving cash into developing markets, these stock markets might have further to fall.
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Happy Birthday Federal Reserve
December 23, 2013 will be the 100th
anniversary of the Federal Reserve System. With the 100th
anniversary right around the corner, Chairman Ben Bernanke should be making
preparations for a large celebration… by printing more money.
The Federal Reserve Act was enacted on December
23, 1913 and signed into Law by President Woodrow Wilson. The three main
objectives of the Federal Reserve Act are:
Maximum employment
Stable prices
Moderate long-term interest rates
The Federal
Reserve is a central bank whose policy does NOT need to be approved by the president or anyone else in the
executive or legislative branches. The Federal Reserve serves the interests of
the general public and private bankers. Hmmm. Let me repeat that:
The
Federal Reserve serves the interests of the general public and private bankers.
How does that work out for the general public?
A little history from our friends at Wikipedia:
In 1816, however, Madison revived it
in the form of the Second Bank of
the United States. Years later, early renewal of the bank's charter
became the primary issue in the reelection of President Andrew Jackson. After
Jackson, who was opposed to the central bank, was reelected, he pulled the
government's funds out of the bank. Nicholas Biddle,
President of the Second Bank of the United States, responded by contracting the
money supply to pressure Jackson to renew the bank's charter forcing the
country into a recession, which the bank blamed on Jackson's policies[citation needed]. Interestingly, Jackson is the only President
to completely pay off the
national debt. The bank's charter was not renewed in 1836. From 1837
to 1862, in the Free Banking Era
there was no formal central bank. From 1862 to 1913, a system of national banks
was instituted by the 1863 National Banking
Act. A series of bank panics, in 1873, 1893, and 1907,[5][6][7] provided strong demand for the creation of a centralized
banking system.
Or
if you prefer
One
option to fund the 100th Anniversary party of the Federal Reserve
System is for the Federal Reserve to institute another quantitative easing. If an organization
like the Federal Reserve has failed to meet its objectives (maximum employment,
stable prices, and moderate long-term interest rates) in a century, should it
continue to exist?
My
opinions…supported by FACTS ! !
Julie
Farrell
"If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered." Attributed to Thomas Jefferson. Unfortunately none of our major institutions have brought to our attention just how dishonest our money system is, a good indication of the control behind these institutions. "I care not what puppet is placed on the throne of England to rule the Empire on which the sun never sets. The man who controls Britain's money supply controls the British Empire and I control the British money supply." Nathan Rothschild
ReplyDelete
ReplyDeleterense.com
The Federal Reserve Racket
By Richard Russell
6-29-8
"I still can't get over the whole Federal Reserve racket.
Consider the following - - let's take a situation where the U.S. government needs money. The U.S. doesn't just issue United States Notes, which, of course it could. These notes would be dollars backed by the full faith and credit of the United States. No, the U.S. doesn't issue dollars straight out of the U.S. Treasury.
This is what the U.S. does - - it issues Treasury Bonds. The U.S. then sells these bonds to the Fed. The Fed buys the bonds. Wait, how does the Fed pay for the bonds? The Fed simply creates money "out of thin air" (book-keeping entry) with which it buys the bonds. The money that the Fed creates from nowhere then goes to the U.S. The Fed holds the U.S. bonds, and the unbelievable irony is that the U.S. then pays interest on the very bonds that the U.S. itself issued. (With great profit to the private owners of The Fed - - Ed. Note) The mind boggles.
The damnable result is that the Fed effectively controls the U.S. money supply. The Fed is not even a branch of the U.S. government. The Fed is not mentioned in the Constitution of the United States. No Constitutional amendment was ever created or voted on to accept the Fed. The Constitutionality of the Federal Reserve has never come before the Supreme Court. The Fed is a private bank that keeps the U.S. forever in debt - - or I should say in increasing debt along with ever rising interest payments.
How did the Fed get away with this outrage? A tiny secretive group of bankers sneaked through a bill in 1913 at a time when many in Congress were absent. Those who were there and voted for the bill didn't realize (as so often happens) what they were voting for (shades of the shameful 2002 vote to hand over to President Bush the power to decide on war with Iraq)."
Richard Russell, "Richards Remarks," dowtheoryletters.
Well Balwin templton, I suppose you subscribe to the theory that the federal income tax is illegal too. Do you pay your tax? Isnt it time for a link to the 9/11 conspiricy?
ReplyDeleteKlackity-Klack, If you do not like his view's just don't read them. Enough with the smartass remarks. You are getting tiresome. Bev.
DeleteNo Bev, I think he is growing amusing.
DeleteHere's my thoughts on the Federal Income Tax. Although it would be nice to think "we the people" run this country that is not what I see. What I see is that those who control the money supply run this country. The paper money that is printed in our country comes into existence as debt and interest is assigned to that debt. It is said that Gold is the money of Kings, Silver the money of gentleman, barter the money of peasants and that debt is the money of slaves. The IRS is collecting interest on the use of money that has been put into circulation as debt by collecting the Federal Income Tax. The power that is inherent in being able to create money out of thin air for endless wars, endless propaganda and other vile acts of evil in my mind makes the federal income tax both illegal and immoral. By subscribing to this system we are willingly allowing ourselves to be enslaved by the International Bankers. We need an honest money system desperately. To better understand who the Oligarchs are behind the Federal Reserve System this read is a must.
ReplyDeletehttp://www.bibliotecapleyades.net/bloodlines/
The Bloodlines of The Illuminati by Fritz Springmeier is hard core Conspiracy, you may never be the same klackity-klack
Clearly you need some courses in economics. That 'debt' is debt we owe to ourselves. The interest is interest we pay to ourselves. You guys really are anarchists, huh?
DeleteTo address your second concern KK Architects and Engineers for 911 Truth is a professional organization that is working hard to bring about an honest investigation of events on September 11 endorse these two videos These two links are both short and informative.
ReplyDeletehttp://www.youtube.com/watch?v=iEuJimaumW4
http://www.youtube.com/watch?v=hZEvA8BCoBw
Its is hard to believe but there are still some people who do not believe the official story on JFK's death.
you can always find an expert that agreess with your side/opinion, no matter how far out there it is.
DeleteMy opinion suported by facts is that aliens have taken over this forum . Get ready for the Zombie apocolyps. It will all come out in the wash Bev.