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Clarksville, TN – The Federal Open Market Committee did not reduce the pace of asset purchases. In its policy statement, the FOMC noted that the improvement in economy activity and labor market conditions since it began the asset purchase program a year ago was “consistent with growing underlying strength in the broader economy,” but “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”The FOMC noted that “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.” In his press briefing, Chairman Bernanke said that “the FOMC concluded that the economic data do not yet provide sufficient confirmation of its baseline outlook.”
He expressed some concern about the rapid tightening of financial conditions, “a concern that would be exacerbated if conditions tightened further.” Bernanke indicated that the upcoming fiscal debates (on the budget and debt ceiling) may pose downside risks to the financial markets and the broader economy.
While expectations of tapering were not universal, a majority of market participants were anticipating a tapering. The decision to delay pushed bond yields lower and fueled broad gains in the stock market. However, tapering will still arrive at some point. The markets continue to put too much emphasis on tapering. Policymakers do not expect to begin raising the federal funds target rate until 2015.
Next week, there are a number of potentially market-moving data releases, but none of the reports should dramatically alter the overall economic picture. Durable goods orders and new home sales are notoriously volatile and may have the greatest chance to surprise. The market’s attention is likely to turn toward Washington. Negotiations over the budget and the debt ceiling are expected to be contentious, with some possibility of a temporary government shutdown or default. The markets are generally complacent that everything will work out, but the downside risk to the financial markets and the economy are considerable.
Consumer Money Rates
Treasury Yield Curve – 09/20/2013
S&P Sector Performance (YTD) – 09/20/2013
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business September 19th, 2013.
Frazier Allen, WMS, CRPS, Financial Advisor with F&M Bank
Web Site: http://www.raymondjames.com/frazierallen
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