When Janet Yellen speaks everyone listens and markets react accordingly

Janet YellenThe Federal Reserve Board (Feds) met yesterday and of course, everyone was listening for news about the Federal Funds rate. The big announcement was that for now, they are leaving the Fed Funds rate unchanged at 0.00% – 0.25%. But what was even more important was Janet Yellen’s press conference following the announcement. Following are some of the highlights:

  1. The Feds are very focused on monitoring inflation (rates will be increased when there are signs that inflation is on the rise).
  2. While the economy continues to improve, housing continues to be a drag on the economy. In fact, Fed chairwoman Janet Yellen commented that she is surprised that housing has not been recovering more quickly than it has been. The Feds believe this continues to be due to very tight lending requirements.
  3. The Feds are stressing patience as they watch closely for signs that signal it is time for changes in the current Fed policy.
  4. As worldwide economies are slowing, this continues to be a factor in our own economic outlook.
  5. Rate increases are very likely at some time in 2015 though there is no pre-determined time as to when the appropriate conditions will fall in place. Some of the factors that will signal time to raise rates:
    1. Lower unemployment
    2. Better utilization of the employable population
      1. Too many people still unemployed
      2. Too many people still working either part time or temporary positions.

It is anticipated that by 2016, Fed funds rate will be inching towards normal and could be as high as 2.5%.

As was seen just after Janet Yellen spoke, Wall Street LOVED her comments and rallied up approximately 300 points.

That rally continued today with the DOW ending up 419 points. Surprisingly, the yield on the 10 year bond dropped and dropped more today again, which will keep mortgage rates down as well.

That rally continued today with the DOW ending up 419 points. But there was also a nice surprise with today’s rally; the yield on the 10 year bond stayed low closing at just under 2.1%. (Remember that mortgage rates are tied to the 10 year bond yield, so this is very good news and important to watch, regardless of which direction the DOW is moving on any given day.)

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