Papale on the Fed Announcement

I love a good burrito.  I also love babies.  But I never thought about a burrito the size of a baby.  Sure enough here it is straight off the internet.  If you don’t finish the burrito I guess you can get one of those double strollers and put the burrito in one seat and the baby in the other.

Ugly.  That’s how the markets have been over the last day or so since Big Ben made his comments on Tuesday.  Initially markets had very little reaction to what came out of the meeting, however, hawks took over Wednesday late afternoon as it is perceived that the buying spree the Fed has been on may be coming to an end later this year.

There is a bit of a perverse affect going on here.  On the one hand, the Fed’s suggestion that their monthly bond buying program may slow means that the economy is well on its way to recovering, especially based on improving labor and housing markets.  The $45bil per month medicine the Fed has been giving the economy, whether you agree with it or not, has begun to do, at least for now, what it was designed to do.  When the patient starts to recover, you generally stop giving the medicine.

However, without the Fed’s monthly goosing, rates will rise, sending bonds down.  Higher rates generally means lower stock prices, even if business and corporate margins are picking up.  So it seems the patient seems to be getting better but he also seems to be a bit addicted to the medicine.

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