Tapering, a New Word in the Economic Jargon Is the Fed Siginiling Higher Interest Rates Is There Fear of Inflation

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Scottsdale, AZ -- (SBWire) -- 05/28/2013 --The FED has been purchasing $85 billion of debt securities every month, Treasuries and mortgage-backed securities. They had said that this would continue until the rate of unemployment dropped, with a target of 6.5%. Although there has been some slight improvement in the employment situation the current unemployment rate of 7.5% is still a long way from the target. The economy has not been strong. First quarter GDP showed an increase of 2.5%. That was below the 3.5% expected by many economists. That was before the negative drag that will come from the “sequester” spending cuts. My expectation has been for a 2.5% GDP growth for the year. I think that my target will be difficult to achieve.

The FED, under the chairmanship of Bernanke has been very open. He has been very different from prior chairmen. He has tried to avoid surprises by having monetary polices well announced in advance. The question is why, in the face of an economy that is not close to robust, are we hearing talk of a tapering of the aggressive monetary policy that has been in place for some time now. There can be only one answer and that is the fear of inflation. Until now monetary policy has been focused on increasing liquidity in the economy. The objective was to try to stimulate economic activity. There has been some success in this direction, however monetary policy alone can not do the job. Fiscal policy is needed to help in creating demand. Increased federal spending has not been forthcoming as a pump primer. The result of the increase in liquidity is that money has not gone into job creation. Instead we have seen increases in securities values and in Real Estate values.

I am not suggesting that this is bad. What I am saying is that the FED may be looking down the road at some increase in inflation. When the FED buys Treasuries and mortgage-backed securities, backed by the government, its is simply printing money. In an expanding economy that can be handled without too much inflation. In a slow economy it can lead to increased inflation. How is inflation contained? By increasing interest rates. If the FED starts to taper their securities purchasing, interest rates will increase. When that happens capitalization rates go up and values go down, a double hit. In addition securities prices will top.

About First Charter Financial Corporation
First Charter Financial Corporation is a leading independent mortgage company conducting business on a nation wide basis. We specialize in arranging financing for commercial properties throughout the US. The projects that we handle include office, retail, multifamily, hospitality and specialty properties. We arrange loans in amounts ranging from a minimum of one million dollars up to as large as 100 million dollars. We maintain relationships with large and small insurance companies, retirement and investment funds, regional, national and multinational banks and we are very active with capital markets funding sources. Victor Weintraub, President of First Charter Financial, has been in the mortgage business for over forty years. He is also a noted economist. Contact First Charter Financial with your commercial mortgage needs. Email info@fcfcorporation.com Telephone (480) 970 0990.

Media Relations Contact

Victor Weintraub
President
First Charter Financial Corporation
480-970-0990
http://www.fcfcorporation.com

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