The Week Ahead: The clock is ticking on zero interest

July 12, 2014 

Who should investors listen to: bankers or the bankers' banker? Both will compete for the market's attention in the week ahead.

A half dozen of America's biggest commercial banks, such as JP Morgan and Bank of America, are due to update their shareholders in the new week about their quarterly financial performances and outlooks. These big banks have been getting cheap money, and their trading desks have profited, thanks to their banker -- the Federal Reserve. And the central banker herself, Federal Reserve Chairman Janet Yellen, makes her twice-a-year update to both houses of Congress Tuesday and Wednesday.

The central bank's strategy of zero percent interest has lasted more than half a decade. It is only in the past six months that the agency has begun to wind down its other extraordinary program, quantitative easing. The tactic of buying government bonds to lower long-term interest rates for borrowers could end by October. This is an explicit signal of the Fed's growing confidence in the American economy.

Six months ago, when Yellen last updated Congress, economic data was slowing, job growth had stalled and much of the country was shivering under the polar vortex. Since the beginning of the year, the job market is averaging its strongest growth spurt in almost a decade, wages are increasing and home prices are trending up.

It adds up to more economic faith from the bankers' bank. But that faith may be exactly what worries the bankers themselves that the days of historically low interest rates may be numbered.

Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter@HudsonsView.

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