Fed cuts; Dow soars
On Dec. 18, Ben Bernanke announced the first of possibly many cuts to the Fed's bond-buying program. This news was taken in a joyous manner by investors as the Dow Jones Industrials soared close to 300 points by the close.
The Fed chairman announced a $10-billion-a-month decrease in the purchase of bonds and a close look at possible cuts in the future should job numbers continue to improve.
Markets have been watching Mr. Bernanke’s actions very closely for the last five years, since the Fed began its attempt to stabilize world economies by spending trillions of dollars on bond purchases.
The Fed has been using the bond purchases to keep interest rates artificially low to help spur home purchases and business expansion.
This is the first decrease in many years, signaling a possible improvement in the economy. When Mr. Bernanke began this latest stimulus program, he vowed to continue to purchase bonds until unemployment rates fell below 6.5 percent
Investors seem to think this spells positives in our economy and drove markets to near highs just minutes after the announcement.
The cuts will go into effect in January, when we will also see a changing of the guards at the Fed as Janet Yellen will replace Ben Bernanke as chairman. Bernanke said Ms. Yellen has vowed to continue on the same path as he and look at possible cuts as signs show improvement.
Market moves such as this make headlines, and people get excited and start to feel more comfortable about investing. These are the times to be careful and really take a look at where your money lies.
Large upticks always feel good, but they can be followed by profit takers. Continue to invest on the fundamentals of a company and try not to be too short-sighted.
I am going to be keeping a close eye on rates and market conditions early next year as this change goes into effect. Remember: Just because the markets are high, that does not mean everything is back to normal. Far from it.
Unemployment is still high, housing is improving. However, we are not out the hole dug back in 2008, and all this debt needs to be taken care of by someone in the future.
It will be interesting to see how this all plays out over the next year. Continue to check in weekly as we watch it unfold together.
Happy holidays to everyone. I’ll see you next year.