When Good News is Bad News

Jun 16, 2013 | by Franck Cushner, CFP®

Every month, the Federal Reserve releases the comments & discussions of the various Fed officials nationwide. These comments and discussions are known as the Fed minutes, most recently released on May 22 for the meeting held April 30-May 31st. Sensitivity to the Fed minutes were elevated this past month as the markets reacted the day the minutes were released. The response by the market to the Fed minutes was a reaction to a possible change in policy, not perceived negative economic data.

 

Markets responded to the possibility that the Fed might stop buying some bonds before year-end. Ironically this bad news is in response to good news, as various Fed officials strongly believe that the economy is improving quicker than expected. Thus, the need for further Q.E. (quantitative easing) may not be needed. Even with a slow down in bond buying, that alone won't raise rates tremendously. Fed officials estimate a real rate increase sometime in 2014 at this point.

 

Source:           Federal Reserve

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