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How The Federal Reserve's Actions May Be Making “Safe” Investments Dangerous

One of the most dangerous situations is when an investor attains a false sense of confidence. With the Federal Reserve enacting such an aggressive monetary policy stance, this has led to reduced levels of volatility and an uncanny calm in the financial markets.

Because the Federal Reserve has stepped into the financial markets with such a large level of support through their monetary policy program, this has led to bond prices that remain elevated and yields that are at very low levels. Not much has occurred over the past few years in terms of shocks to the system.

The danger occurs when investors believe this situation will remain in place forever. Nothing lasts forever and one should always prepare for the future.

So far, the net result from the monetary policy action by the Federal Reserve has been higher home prices, an increase in car sales, higher asset prices in general, such as stocks, and a general calm in the financial system.

What happens when the Federal Reserve starts to reduce its monetary policy stance? I think it will hit many sectors, but it will especially affect the bond market