Now that our elected officials in Washington have come to a short-term budget agreement, what can we expect in the markets and economy for the near term? Unfortunately, probably much of the same:
- Addicted to the Fed. Many economists believe a major reason why the Fed did not reduce or taper its bond purchases this past September was because of the federal budget issues that needed to be addressed in October. The Fed is aware of how dysfunctional and crisis-creating our government has become and didn’t want to further stress the markets during that period of time. However, easy money Fed policies may have become an addiction for the economy rather than a cure. They have to end sometime and the impact of their withdrawal becomes more severe the longer they continue. Unfortunately the debt ceiling was only raised until early February of next year. Expect the Fed to continue easy money policies while budget battles reign.
