By maintaining artificially low interest rates, the Fed was hoping to drive investors away from bonds and into stocks and other, more risky assets. The Crash of 2008, combined with a retiring or soon to retire Baby Boomer population that is more interested in income than capital gains, resulted in a mass exodus away from stocks in the 2009-2013 period.
By keeping interest rates near zero, the Fed has been hoping to push investors into the stock market. The hope here was that as stock prices rose, investors would feel wealthier (the “wealth effect”) and would be more inclined to start spending more, thereby jump-starting the economy.
This has not been the case. Instead the entire capital market structure has become mispriced.
Individual investors have been fleeing stocks for the perceived safety (and more consistent returns) of bonds. Since 2007, investors have pulled over $405 billion out of stock based mutual funds.
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