The Stock Market reached record levels today. Normally that would be cause for celebration, but if you look at the reasons behind the rise in the stock market, the news doesn’t look quite so good.
Yahoo Finance reported today that the federal government will continue putting stimulus money into the economy for the near future because the economy is not growing at a satisfactory rate.
The article reports:
The Fed predicted Wednesday that the economy will grow just 2 percent to 2.3 percent this year, down from its previous forecast in June of 2.3 percent to 2.6 percent growth.
Fed officials decided to continue their $85-billion-a-month bond purchase program, surprising most economists, who had expected a slight reduction. The bond purchases have been designed to keep long-term loan rates low to encourage spending.
So what has this got to do with the stock market? Financial people expected the Fed to begin to slow its bond purchases, which would have begun the rise of interest rates. Right now, with interest rates at record lows, and the possibility of inflation, the stock market is a logical place to invest. As the Fed begins to pull back from its bond purchases, the stock market will fall slightly, mortgage rates will increase, and we will probably begin to see some serious inflation.
The stock market is currently being propped up by the Fed. I have not heard any good guesses as to what will happen when the Fed begins to slow down the money flow.