How Will Investors React?
Calls for an end to the recession are gaining steam once again and the Federal Reserve should be watching carefully how investors react. The huge increase in government debt has had little impact on interest rates so far, since many investors are still using Treasuries as a safe haven until they think the markets are starting to turn around.
Many investors are champing at the bit, hoping better yields are around the corner and the big question is where will they turn to, stocks or commodities. If we start seeing a big push in commodities once again, the Fed will have to rethink it plans to keep interest rates at 0% for an extended period of time.
A lot will depend on the next earnings reporting period, if those numbers remain sluggish, investors may view commodities as the better option. Keep in mind that the government’s debt is one big noose hanging around our economy and while inflation concerns are muted for the time being, eventually it’s going to rear it’s ugly head.
As investors start turning away from Treasury securities those inflation concerns will start growing. If the Fed has to raise rates before they want to, it could have a serious impact on recovery efforts.
Demand isn’t going to remain down forever but it’s not going to return to it’s former level overnight, not with the current unemployment situation the way it is. That being said, the Fed is going to have some difficult choices ahead of it pretty soon.
Many experts believe that this recession is going to leave a deep and lasting impression on the economy through the next decade. Economic growth will likely remain sluggish for years to come and the availability of credit will also remain scarce for some time as the banking system tries regain it’s footing.
