Tuesday, March 29, 2016

Chicago's Mortgage Choice - March 29, 2016 Real Estate Report - The Fed Has Spoken

In an apparent example of reverse psychology, the markets seemed to have liked what the Federal Reserve Board said after their last meeting. What the Fed said was that they are concerned that the economy is suffering because of economic concerns -- "Since the turn of the year, concerns about global economic prospects have led to increased market volatility and tighter financial conditions in the United States," Chairwoman Janet Yellen stated. Thus, the Fed dialed down their economic growth forecast for the year, as well as the number of rate hikes they expect this year. The stock market rallied after the statement was released, and long-term interest rates fell somewhat. Thus, we are seeing that for now, the stock market likes bad news. Why would that be? Last week we spoke about stocks liking higher oil prices -- for now. Of course, a slower economy means low interest rates, and low rates also represent good news for stocks. Low rates also favor real estate and other sectors of the economy. A word of caution about all of these connections. The markets and the economy can turn quickly and the Fed also said that their plans are subject to change if that happens. In other words, if the economy gets stronger, the Fed statement goes out the window. The economic news released in March did not seem to show a weakening of the economy and this week another jobs report is released on the first day of April. If the economy is still producing a significant amount of jobs, this news will be hard for the Fed to ignore. On the other hand, if wage growth continues to stagnate, then the Fed will have more time to see where the economy is headed before they make their next move. And just to complicate matters, the latest terror attack in Europe is another reminder of how quickly things can move in a completely different direction. Keith Stewart 773-529-7000

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