Feds Exit Strategy – Too Late, Hopefully Not Too Little
Federal chairman Ben Bernanke outlined an exit strategy for the trillions ($2.2 trillion to be precise) the Feds has poured into the U.S. economy. The strategy is to raise interest rates once the financial recovery is close to completion.
I see at least two things that are of importance here: -
- This is somewhat of a feeble strategy because it may encourage the banks to keep their money parked at the Federal Reserve instead of lending it to consumers.
- The interest rates will not be rising any time soon based on the current economic outlook! This, of course, is not necessarily a bad thing for consumers that still have credit left to enjoy.
No Interest Rate Hikes…
As investors, this is a classic example of what NOT to do… i.e. think about how you will exit a particular scenario half way through starting it! Multiple exit strategies need to be in place before a prudent investor commits to a particular deal.
According to the article on CBSNews.com, the Federal Reserve has not ruled out buying mortgage securities to sustain the economical recovery in the U.S. What this means, I think, is that the consumer interest rates are not going to be rising anytime soon. Inflation delayed, at least for now…
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