While real estate and stock prices have improved in recent years, data released by the U.S. Census Department last week revealed that the Wealth Effect is likely benefiting only a small portion of U.S. citizens. For example, median household income was stable during 2012 at $51,017, but this amount is down 8.3% since 2007, and slightly lower than what households made in 1989 ($51,681 in current dollars). Also during 2012, 15% of the population (46.5 million people) was at or below the poverty level. This is an increase of 2.5% since 2007.
During October 2010, Chairman Ben Bernanke said, “there are clearly many challenges in communicating and conducting monetary policy in a low-inflation environment, including the uncertainties associated with the use of nonconventional policy tools." While these tools have provided some economic value, the recovery process has taken longer than expected.
With the Federal Reserve's leadership in transition, Janet Yellen may be the front-runner but a smooth transition is not assured.
Given weaker than expected economic fundamentals, the investment environment may encounter increased volatility.