Santa Claus may have been seen warming up his sled this holiday season, but investors should instead be keeping a closer eye on the Federal Reserve and the bond market.
With a global economic recovery seeming likely, the Federal Reserve has begun to shift its focus from stimulating the economy to increasing employment. To do this, the Federal Reserve has decided to purchase an additional $120 billion in government-backed bonds every month. This move is significant for investors as it will keep interest rates at historic lows, thus keeping lending costs lower and businesses more viable.
The bond market is also a key indicator of what the future may have in store. When investors are bullish, they will purchase more bonds, as this increases their exposure to fixed income investments and signals a strong economy. Conversely, when investors are bearish, they tend to sell off their bonds, as this signals a weakened economic outlook. The movement of bonds is thus a reliable bellwether of what to expect in the upcoming months.
As investors continue to prepare for 2021, they should pay close attention to the Federal Reserve and the bond market. The Federal Reserve’s policy shift will influence the path of economic recovery, and movements in the bond market will give investors insight into the strength of the economy. With the festive season coming into full swing, tracking the bond market may just be a more reliable way to predict what’s next in the world of economics.
