Janet Yellen Tells the Future

Fed Chair Janet Yellen concludes her semi-annual testimony before Congress’ House Financial Services Committee today.  Yesterday she commented that the current market turmoil may deter the Central Bank from the multiple rate increases that officials had foretasted for the 2016 year.  Over the last three months, the 0.25% hike in the Fed Funds Rate has caused the Three-Month Bond’s yield to increase.  At the same time, every other government debt instrument has seen a drop in yield due to increased demand as a result of the “flight to quality” movement.

I can’t tell the future, and whether or not the yield curve will continue to flatten, but this I know: any time that you can purchase an asset (such as a house) which is appreciating at an average rate of 5% per year, and borrow money to do so at less than that rate of appreciation (and get a tax deduction on top of that), it’s a pretty good time to purchase that asset.