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Business Sense column
By Bill Freehling
THE STOCK market
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
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
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,
People feel wealthier when their portfolios
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