Market Update

Filed in General by on January 21, 2014 0 Comments

Market Update

The headlines this month are the Fed’s decision to finally start tapering the bond buying spree beginning now.  They are backing off buying bonds by $10 billion a month from $85 billion.  I think this is significant and I am happy it is finally taking place.  I have also read recently that this has not had much of a negative impact, so we might see the tapering accelerated soon.  This, of course, will cause rates to increase over time.

At the end of January we will have a new Chair of the Federal Reserve.  Although I am happy to see a change, I am not sure how much will change.  Janet Yellen has heard her share of criticism.  I don’t know much about her, but from what I have read she has many of the same beliefs as the current Chair, Ben Bernanke.  She is pro government involvement and will continue loose monetary policies.  Her critics claim that the loose policies have helped keep rates low and stocks high, but there are concerns about the long term impact, specifically inflation.   What is important for us to know is that we should not see much change with the Federal Reserve stimulus plan once she takes over.

Rep Mel Watt, the new head of the FHFA (which is the head of Fannie and Freddie), says that the Fannie and Freddie guarantee fees will be left alone.  Early in December it was announced that these fees were set to increase in March and April.  These are fees charged on loans.  Increasing these will increase the cost of the money and decrease buying power. Although I don’t agree with a lot of what he plans to do, I do like that he is leaving these fees alone.  We will start to see interest rates increase, so money will naturally get more expensive.  Natural movement in markets is always better in my opinion. That, and Fannie and Freddie are profitable now, so there really is no reason to increase those fees at the moment.

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