Interest Rate Reaction To Yesterday’s Fed Announcement

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The stock and bond markets were moving lower this morning in reaction to the Fed’s announcement yesterday.  With rates at 22 month highs, lets recap yesterday’s Fed comments:

  • Will slow bond purchases by the end of 2013
  • Expect to start rising short term interest rates by 2014
  • Economy is growing, but growth and inflation rates are below the Fed’s expectation

So what is the take away for investors?  First of all, it’s the summer.  Volume is lower and volatility tends to be higher until after Labor Day.  Secondly, the Fed hasn’t made any changes yet, but is being transparent about actions they will undertake in six to 18 months.  This is a short enough time period that traders are attempting to get the jump on each other and are driving up interest rates now.

The impact on all of us? Long term rates like mortgage rates are moving higher, almost to two year highs, but the Fed is holding short term rates at zero, so CD and savings income investors aren’t earning anything on their deposits.  To me, this only leaves stocks as the most attractive investment at this point.  But what about the volatility?  As I’ll continue to write about in the coming months, stock prices are getting pretty high, but there are still some great opportunities to be found and I expect this volatility to help create opportunities to invest.