Investors gagged on recent news from the Federal Reserve that some of its policymakers want to curtail the central bank's aggressive monetary easing policy. The suggestion raises the specter of rising interest rates, which may hover over the economy for all of 2013.
But investors have overreacted to such news before, and there may be just as much likelihood that rates stay flat or even decline in 2013. "Somehow this market just is not happy unless it has something to flip out about," says David Zervos, global head of strategy and economics at investing firm Jefferies & Co. "Just a few days into the new year, we found a new worry for all the chicken littles."
The Fed is entering its fifth year of an aggressive easing strategy meant to push interest rates down, make borrowing cheaper, stimulate spending and drive investors out of safe assets like bonds into riskier assets like stocks. Though controversial, the Fed's policy has worked somewhat as intended by boosting stock values, making it easier for consumers to buy cars, and helping the housing market recover from an epic bust.