Easy Money Until 2014
Today, we received word from the Federal Reserve that it’s going to be easy money at least until the end of 2014. The Fed flat-out stated that it isn’t likely to raise interest rates for about three years, and that’s much later than the central bank’s previous call for rates to remain at rock-bottom levels until mid-2013.
The move clearly is an attempt to continue bottle-feeding an ailing economy back to health. While this coddling might be good for the equity markets, so far, access to easy money hasn’t been able to right our economic ship.
In the Fed’s statement, it repeated its view that the economy faces “significant downside risks.” However, the central bank offered little to suggest it was close to launching another round of bond-buying, or what’s now commonly known as quantitative easing.
Bill Gross, co-chief investment officer the PIMCO funds, called what the Fed was doing, “QE 2.5.” I think this is an apt description, as the Fed’s actions fall short of actual quantitative easing, but the accommodative stance for several years certainly is designed to stimulate the economy by keeping the money spigot wide open.
Stocks had a positive reaction to the Fed announcement, as it means there is plenty of capital for the big guys to borrow at very attractive rates and to put to work in stocks and other securities. As for the economy, it remains to be seen what real impact the Fed’s announcement will have.
I think one thing for certain is that the value of the U.S. dollar will continue coming under pressure, and that means we could see commodities, such as oil and gold, keep rising. It also means multi-national companies that rely on a weak dollar to sell their products overseas will continue benefitting. For savers, it just means more pitiful returns, and not much in the way of a reward for hanging onto wealth.
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Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
