NEW YORK (MainStreet) The recovery in the economy will continue to show improvement over the next year despite the recent rise in interest rates, according to a new report by TD Economics.
"The markets get upset, start gyrating and become volatile but overall they move higher over time as corporate America, the U.S. economy and the global economy expand," said Michael Farr, founder of Farr, Miller & Washington, which manages over $900 million in assets.
Since December 2012, the Federal Reserve purchased $85 billion in U.S. Treasury bonds and mortgage-backed securities each month. Citing improvement in the labor market, Federal Reserve officials began talking about ending its monthly asset purchase program called Quantitative Easing (QE), which has been a catalyst in the rise in interest rates since July.
"Quantitative easing was never meant to go on forever," said TD Chief Economist Craig Alexander. "The Fed's concern over near-term downside risks has pushed tapering out a few meetings but the realization that the program will end in the relatively near future means higher interest rates are here to stay."
Just last week, when Federal Reserve officials decided not to taper the pace of its monthly asset purchase program, interest rates dropped while total estimated inflows to long-term mutual funds were $2.29 billion for the week ending Wednesday, September 18, 2013, according to the Investment Company Institute.
"We haven't had a 10% market correction in two years and that is entirely aberrational. As long as the Federal Reserve shovels money into the furnace there's no reason or room to cool off," Farr told MainStreet.