The Grinch Who Stole Our Interest Rates

All we want for Christmas, other than peace on Earth and the Cardinals to have a winning season in 2011 is for the interest rates to come back down and the economy to improve.   Except.....the two don't necessarily go together. 

At the Federal Reserve meeting on Tuesday, the conversation was focused on the Money Santa,  Fed Chair Ben Bernanke,  and the effects of  the first round of quantitative easing  or QE2 program.  One month ago the fear was deflation:  our economy  appeared to be  in a downward spiral and the only Christmas cheer was to print money and buy bonds to keep our interest rates low to support growth.

So why then have our interest rates spiked up?    The confident answer is the first round of QE2, combined with the positive economic news, is stimulating our economy.  Therefore our rates would  actually be higher  if not for their intervention.

 Another response is the surprising sell off of the ten year treasury bonds.  The ten year's yields, determine our 30 year fixed mortgage rates.  Investors are abandoning the once safe haven and running back to the glitzier returns of the stock market.  Dow Jones is having its strongest show in two years, a sign that consumers and investors believe 2011 will be the year for the recovery we have been promised.

The elves working it on the stock market are giddy over the news that November retail sales and growth in October business inventories exceeded forecasts.

 Santa's helpers must have eaten too many iced sugar cookies and in their exuberant state overlooked one or two factors that may continue to affect the spirit of our economy.

 Did they crack their little noggins when they slipped on ice while bundling the sleigh with printed money and completely forget about the job market?  Almost 10% of Americans are out of work; and in some areas it is closer to 20%. 

 And if interest rates continue to climb, today we are bumping the 5% mark; it may take a toll on our housing market. 

 The economic crisis came without ribbons. It came without tags. It came without packages, boxes, or bags.   Our economy will get well, we all have to believe.  Only time will tell what our leaders achieve.