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Currencies & Precious Metals Rally on QE3 Announcement
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Well, the FOMC didn’t disappoint the equity markets, though Bernanke certainly disappointed Chuck! The Fed decided to institute another round of bond buying in order to try and boost the housing and labor markets. The markets had counted on the Fed announcing some sort of plan, but Bernanke’s use of unlimited funding was even more dovish than most had predicted. The equity market shot up, the dollar fell, and precious metals got a boost.
The Fed took a page out of the ECB’s playbook by keeping their program open-ended, with a promise to continue injecting liquidity into the markets until the jobs market improves. The announced stimulus plan is actually a combination of two different ones; first they announced a new plan to purchase up to $40 billion a month of agency mortgage-backed securities, and they also announced an extension of their Operation Twist.
Combined, these two programs will have the Fed purchasing up to $85 billion of longer term securities per month through the end of the year. And if the labor market doesn’t improve, the program would be extended and could also be expanded. Finally, the Fed said they would keep short-term rates (the only ones they can directly impact) near zero until at least mid-2015, a bit longer than their previous estimate of late 2014. Apparently the Fed has all but forgotten the first part of its ‘dual mandate’. How can they guarantee inflation won’t show up until 2015? But I guess that is a bit easier when they are the ones reporting the inflation numbers.
Chuck should be patting himself in the back right now as he predicted that this would be the meeting stimulus was announced long before the Big Boys! He called the desk just after the FOMC announcement to let us know just how upset he was regarding this latest round of stimulus. Here is a quote from our conversation: “Unfortunately I don’t think this was the right call by the FOMC. I am incredibly upset the Fed decided to send us down this dangerous road and believe this decision will end up being looked back on as a horrible one for our country. A bad day for the US…”
Read more: Currencies and Precious Metals Rally on QE3 Announcement
2012-09-18 09:21:15
Source: http://www.pmbg.net/2012/09/currencies-precious-metals-rally-qe3-announcement
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