Last week, the Fed indicated that it expects the economy to continue to improve and the market freaked out.
Today, revised GDP numbers for Q1 show that the economy is doing much worse than we thought, and the market breathes a sigh of relief...
Is it just me, or is this system officially bonkers?
The market in general is worried about interest rates going up. When the Fed indicates that the economy is improving, this increases the likely-hood that the Fed will decide that it is a good time to raise interest rates (which they control by way of how QE is going into the system).
A huge number of people are invested in bonds right now and when interest rates go up the value of those bonds goes down, thus people in bonds loss money (this is because they are invested in bonds that are locked with the older, lower interest rates; whereas the newer higher interest rate ones are more desirable).
Also stocks may possibly drop when interest rates rise because it means it costs businesses more money to borrow money.
An interesting point though is that for future Mustachian savers, interest rate hikes are a good thing, in general, because you will have the opportunity to buy bonds with higher interest rates to help fund your lifestyle for FI with more passive income. Thus, cheer on the Fed for higher rates.
Also, if we ever go back to the high interest rates that we got in the Carter years, i.e. 10-15% for a government bond, buy a bunch of those for 30 year terms to lock in the high rates. Avoiding buying any bonds now because they don't pay crap.