Wednesday, September 21, 2005

Oops! They did it Again

Oops! They did it Again

Fed raised rates by 25bp again yesterday and got the opposite of what they wanted: long term bond yields dropped!

Despite a short-term setback due to Katrina, this is not going to slow the US consumer, nor the real estate market. And that’s because, unlike in the UK, US mortgages are mostly fixed rates.

The only place where the consumer will feel a little pinch is on her credit cards. But what’s an extra 0.25% when you’re already paying 18%? And of course there is the gas price, but the US consumer seems immune to that so far.

So, after a small setback, equity prices will recover because bond yields are so low, commodity and real estate prices will keep on going up, and the Fed will keep nudging up interest rates…

I guess some bubbles have to run their course or they wouldn’t be real bubbles.

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