Things are generally well in the economy (key word = generally). Still, many people are leaving stocks and buying bonds behind, which is what they do when they are nervous about economic prospects. Why?
“The thing which is the risk to bonds — which is inflation — doesn’t seem like it’s going to turn up anytime soon,” says Fusion’s Felix Salmon.
We have to consider the relationship with inflation to better understand the bonds market. Here’s the second question we want to know the answer to: Why is there no inflation in this dragging economy?
“There’s still so much slack in the labor market. People aren’t getting hired. That’s not pushing upward pressure on wages, the things people buy,” Catherine Rampell from the Washington Post. “I think you really need to see a lot more activity in the economy before you really need to worry about inflation.”
Inflation holding at low levels. People not getting hired. We’ve got that covered. We turn next to housing — a key indicator of growth.
If you don’t already know his name, Mr. Mel Watt is the director of the the Federal Housing Finance Agency, and this week, the oversight agency of Fannie Mae and Freddie Mac said they are going to make it easier for people to make mortgages and take out loans to boost the housing market.
The third question on our minds at the end of this week: will the housing market ever recover, and how does that help the overall economy?
“I’ve always been suspicious about the U.S. government trying to boost the economy by making houses more expensive,” says Salmon. “If you live in a country with 60-something percent home ownership, those policies always become very popular politically because people like to see the value of their houses go up.”
But Watts wants to make Fannie Mae and Freddie Mac smaller: reform them, and maybe get rid of them.
“The administration has thrown its support behind a bill, that’s kind of dead at this point, to wind down Fannie and Freddie. To replace them with something else. Hopefully something more permanent that would encourage more ownership. But it doesn’t seem like that policy goal has turned around at all,” says Rampell.
Are we stuck in the past? We ended our wrap with a callback to the past, as former Secretary of Treasury Tim Geithner released a memoir on his role supervising President Barack Obama on the Great Recession. Something which we’re very slowly recovering from.
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