You may have already noticed the significant rally in worldwide markets over the last few months. During this time, there has been much speculation over whether the Federal Reserve would provide further stimulus to the lagging economy. Late last week, Federal Reserve Chairman, Ben Bernanke, announced the third installment of quantitative easing, or QE3. Under the new plan, the Fed will purchase $40 billion of mortgage debt each month. Bernanke stated that the Fed was looking for “ongoing, sustained improvement in the labor market.” With no particular number in mind, the Fed will keep the bond-buying open-ended until the labor markets improve substantially. Of further note, Bernanke said it would probably hold the federal funds rate (rate at which depository institutions lend balances to each other overnight) near zero “at least through mid-2015.” After the announcement, stock indexes jumped to their highest levels since 2007.
As we enter the 4th quarter, all eyes will be on the election, fiscal cliff, and overall direction of our country. Since it is impossible to predict what will happen with these uncertainties, it is important to maintain your investment disciplines through a diversified portfolio. The Fed’s commitment to further monetary easing and low interest rates could potentially provide further downside pressure on the U.S. dollar, causing higher rates of inflation in the future. Over the last couple years, we have been working hard to adjust portfolios for the potential inflation and market risks associated with such Federal Reserve policies. If you have any questions about your portfolio or the information above, please give us a call at your convenience. We look forward to serving you!