THE STOCK market is supposed to be a reflection of how the economy is doing, or at least of how investors believe things will be going six months down the road.

But the market also can have a real effect on shaping the direction of the actual economy, and that potential seems extremely real these days. And that is not lost on the Federal Reserve.

The stock market has been soaring of late, getting to within a few percentage points of the all-time high set in 2007 before the economy crashed. It's now doubled from the March 2009 lows.

That sharp move upward has left some shaking their heads. Economic data show that things are improving, but not at a rapid clip. The jobless rate is still high, the country and its residents are loaded down with debt, and millions are underwater on their mortgages. Thus the market's move skyward doesn't seem to be a reflection of economic reality.

Many will counter that the market is a forward-looking mechanism, and that it's moving up because investors believe things will be better in six months. That's possible, and most would hope the market is correct. But the rally seems to be due at least in part to a lack of good alternatives, as well as federal policy.

The Federal Reserve has basically said interest rates will remain at rock-bottom levels until the economy regains its footing. The Fed has committed to a strategy of buying long-term bonds to keep rates low.

That's great for borrowers. It means people can buy houses at low-interest rates, and qualifying businesses can take out affordable loans to expand and start.

Yet low-interest rates aren't such a great thing for conservative people who prefer buying bonds or keeping their money in the bank. These savers are making practically nothing on their investments and deposits.

Hence many people have probably decided that the stock market is a better place to be than bonds, CDs or other fixed-rate investments. Investors may have also concluded that the Fed's policy is likely to create inflation down the road and decided that it makes more sense to put their money in companies that can raise their own prices as well.

These federal policy manipulations may well mean that the stock market's rise isn't due to traditional causes. This time, however, a higher market may actually lead to a better economy, a reverse of the usual cause-and-effect relationship.

People feel wealthier when their portfolios go up. As a result they might decide to green-light a renovation, buy a new house or expand a business. All of those things have real effects on the economy.

It's not a traditional relationship between the market and economy. But it's also not likely that very many people are complaining when they look at their recent portfolio results.

Staff reporter Bill Freehling writes this biweekly column on business, personal finance and investing. He can be reached at 540/374-5405 or bfreehling@freelancestar .com.