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Investing Specialists

The Fed Makes Its Move

The Fed's newfound economic optimism comes at a time when things are looking a little softer to me.

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The Federal Reserve almost entirely drove the markets this week. Fed statements and a news conference suggested that the economy was stronger than it previously thought, and as a direct result, bond purchases could cease sooner than anticipated, perhaps by the middle of 2014. That sent bonds plunging, which makes sense, and equities too, which makes somewhat less sense, except perhaps as a knee-jerk reaction and the potential for more competition from higher-yielding bonds for stocks.

U.S. economic news was mixed, with good news matching bad news tit for tat. Builder sentiment was up sharply, but housing starts and permits were lethargic. Existing-home sales were showing signs of breaking out, but initial unemployment claims ticked up. Weekly shopping center data dipped again, but the Empire State manufacturing data looked a little better. Inflation data remained remarkably moderate, with health-care costs (notably, and perhaps inexplicably) tame. Inflation is now running under Fed targets.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.