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By contrast, the Federal Reserve under Ben Bernanke has stressed the need to give markets plenty of notice before making a move. And interest rates today remain close to historic lows. The Fed's short-term rate is near zero. "You have to look at the big picture," says Guy Cecala, head of Inside Mortgage Finance, an industry publication. "Historically low rates are generally a sign of a weak economy. When things improve rates should rise noticeably." The average rate for a 30-year mortgage hit 3.81 percent this past week, the highest in a year, according to Freddie Mac. Cecala thinks there's a good chance it will cross above 4 percent in the coming months without causing any trouble for the housing market. Record-low rates have supported sales, he argues, but what really brought the housing market back to life was a growing confidence among prospective buyers that they weren't about to lose their job. "You had to have comfort in your job and know you had employment ahead of you" before buying a house, Cecala says. Some investors have argued that the bond market is a bubble, ready to pop when the Fed steps away. Everyday investors have much at stake, putting $1.3 trillion into bond funds since 2009, according to Strategic Insight, a firm which tracks mutual funds. It's a prediction that people have been making for years, says Catherine Gordon, who heads a research team at the mutual-fund giant Vanguard. Warnings of a bond bubble started shortly after the Fed began buying bonds in late 2008. With inflation low, Gordon sees nothing to suggest it is any closer to coming true. Even so, any increase in long-term interest rates pushes bond prices lower. Her advice? Sit tight. Years may pass, but higher interest rates will eventually compensate for a bond fund's losses, she says. "Don't try to time the market," Gordon says. "It's better not to worry about what your bonds or stocks are going to do next month or next year."
[Associated
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