Is the market ready for the Fed’s changed rules?

Heidi Moore Apr 25, 2011
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Is the market ready for the Fed’s changed rules?

Heidi Moore Apr 25, 2011
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JEREMY HOBSON: This week could be the week the Fed changes directions. Ever since the financial crisis the Central Bank has been trying to make it as easy as possible for people to get money. The Fed has been cutting interest rates, printing money, and buying up mortgages to boost home-buying.

Well tomorrow, Federal Reserve officials will meet and for the first time they’re expected to signal an end to monetary loosening.

For more lets bring in Marketplace’s New York Bureau Chief Heidi Moore. She’s with us live. Good morning.

HEIDI MOORE: Good morning Jeremy.

HOBSON: So Heidi, if the Fed does, as expected, start to reel back its stimulus efforts, how is that going to affect stocks, bonds and the housing market?

MOORE: Well, it’s going to have probably a big effect as people get used to not having the Fed involved in the markets. But more importantly, I think most people will see the impact on interest rates. The Fed has been buying treasuries in part to help keep interest rates low and make borrowing cheaper for companies and for mortgages. And so you’re probably going to see those interest rates rise as set by the market, starting in June when the Fed stops buying all of these treasuries.

HOBSON: And Heidi, the Fed and specifically Ben Bernanke has insisted that inflation is not a concern — that it’s been very low. Doesn’t the fact that the Fed is about to switch directions here signal that inflation is in fact a concern?

MOORE: Yes, exactly. I mean, the Fed approach to inflation has stretched credulity a little bit because they’ve been saying that food prices and fuel prices are so high because of demand. No we’re not eating more, and we’re not driving more, so most people believe that those prices are going up because of inflation already. But the Fed doesn’t measure food and fuel in inflation. They measure housing and wages and of course we have unemployment and the housing market is kind of shot. So as far as the Fed is concerned, there’s not evidence of inflation. But a lot of people paying $5 for that box of cereal do see it.

HOBSON: Marketplace New York Bureau Chief Heidi Moore — who is blogging at our new Wall Street Blog at Marketplace.org. Heidi, thanks so much.

MOORE: Thank you Jeremy.

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