Friday, July 11, 2014





Fed message a boon for stocks, not for job seekers


September 19. 2013 11:20PM
Story Tools
PrintPrint | E-MailEMail | SaveSave | Hear Generate QR Code QR
Send to Kindle


WASHINGTON — The Federal Reserve’s decision to maintain the size of its economic stimulus could be a gift for car and home buyers, for Americans with 401(k) accounts and perhaps for developing economies.


Yet for savers who rely on interest income, Wednesday’s announcement was a sour one. The Fed also sent an ominous message to job seekers: Hiring and economic growth remain sluggish and vulnerable to further weakening from budget fights in Washington.


The Fed surprised just about everyone by delaying a slowdown in its $85 billion in monthly bond purchases. The purchases are designed to keep long-term loan rates low to spur borrowing and spending. Fed officials had been signaling that they’d likely start reducing their purchases by year’s end if the economy steadily improved. That pullback was expected to start this week.


But on Wednesday, Fed officials made clear they aren’t yet satisfied with the economy’s progress.


“Conditions in the job market today are still far from what all of us would like to see,” said Chairman Ben Bernanke.


Here’s how some individuals and groups could be affected by the Fed’s decision to delay a slowdown in its bond purchases:


• 401(k) and other stock investors:


Financial markets celebrated the Fed’s delay. The Dow Jones industrials surged more than 1 percent to a record high of 15,677 before retreating slightly Thursday.


It’s no wonder stock investors were ecstatic: The Fed’s bond purchases could hold down yields on long-term bonds. Low bond yields cause some investors to shift money into stocks in pursuit of higher returns. That money tends to boost stock prices.


• Borrowers:


The Fed’s bond purchases benefit borrowers by pushing down long-term interest rates. The yield on the benchmark 10-year Treasury note dropped sharply after the Fed announcement. Rates on mortgages and many other consumer and business loans tend to parallel the 10-year Treasury’s yield.


“It helps people who are looking to buy a house in the near term,” said Gus Faucher, senior economist at PNC Financial Services Group. “It makes housing more affordable. That’s one reason the Fed decided not to act — to make sure the recovery in the housing market continues.”


• Savers:


The steady pace of the Fed’s bond purchases isn’t going to please savers. Super-low rates have squeezed people who depend on interest income. Americans’ annual interest income fell 11 percent — from $1.36 trillion to $1.21 trillion — between 2008 and 2012, the Commerce Department says.


Rates on saving accounts have become nearly invisible. The annual percentage yield on the average U.S. money market account is 0.1 percent, according to Bankrate.com. The average one-year CD is paying 0.7 percent.


• Job seekers:


The Fed’s message offered scant hope for people looking for work. Its forecast for economic growth this year is a meager 2 percent to 2.3 percent, slightly weaker than its forecast three months ago. It expects unemployment to remain a still-high 6.4 percent or higher through next year.


“We’re still not satisfied, obviously, with where the labor market, the job market is,” Bernanke said.


He noted that many job seekers have grown discouraged and given up looking for work.




Comments
comments powered by Disqus Commenting Guidelines
Poll
Mortgage Minute


Search for New & Used Cars

Make 
Model
 
Used New All
 

Search Times Leader Classifieds to find just the home you want!

Search Times Leader Classifieds to find just what you need!

Search Pet Classifieds
Dogs Cats Other Animals



Social Media/RSS
Times Leader on Twitter
Times Leader on Youtube
Times Leader on Google+
The Times Leader on Tumblr
The Times Leader on Pinterest
Times Leader RSS Feeds