Fed Rocks the Boat ~ And Summer Was Going So Swimmingly

The last week of May saw Fed Chairman Ben Bernanke's Capitol Hill comments sending shockwaves through financial markets, felt as far away as China. 

A reason why Stock and Bond markets took a pummeling in the aftermath was due to investor-wide fears that the Fed may soon taper its "Quantitative Easing" program. QE is the Fed's continued effort to stimulate the economy by buying Treasuries and Bonds. And just in case you forgot, the Fed represents the nation's policymakers who set the country's interest rates and monitor its general economic health. 

As the economy improves with signs like better jobs and strong and stable housing numbers, the Fed may see proof that it could potentially cut the chord and reduce its QE efforts. But "tapering" may not mean such bad news for Bond markets, which dictate home loan rates. 

Certainly there is no inflation, stocks are doing well, and the labor market has shown modest improvement. 

Smooth Sales for Housing 
Housing markets have shown signs of improvement for several months now, and continue on this road. Last month, New Home Sales figures rose to an annual pace of 454,000 units, above the expected 425,000, and Existing Home Sales were up nearly 10 percent from April 2012. 

The percentage of purchase home loans increased for a third consecutive month in April, according Ellie Mae's Origination Insight Report. Purchases were 42 percent of total home loans, echoing July 2012, when they were also at their largest market share at 42 percent. Total home loans consisted of FHA at 22 percent and conventional home loans at 68 percent of the total. Fifteen-year mortgages comprised 15 percent of all mortgages and adjustable rate mortgages had a 3 percent share, also at their highest since last July. 

Have No Fears
To wrap up, if there is fear of tapering in the third quarter, Stocks could have trouble moving higher, giving Bonds some support. And considering the global landmines in Europe and now Japan, these are fundamental reasons for relatively low rates.