Friends
As we mentioned the other day, the Fed produced a statement and then a Bernanke press conference today in which the policy of asset purchases is indeed alive and well. As we expected, the Fed Chairman announced that once operation twist is done at the end of this year, the Fed will continue to buy an additional $45 billion worth of treasury securities with no end in sight. This is in addition to the practice of purchasing $40 billion a month worth of mortgage backed securities which is already in place. Basically, the Fed will be buying almost $1 Trillion worth of securities a year going forward.
Ah, but that’s not all. Instead of saying that rates will remain low until 2015 or some other date in the future, the Fed now is going to tie its Fed Funds interest rate policy to the unemployment rate and inflation. That’s right, rates aren’t going up until we get the Federal unemployment rate down to 6.5%. Unless people leave the work force in droves, just count on rates staying at zero for the rest of your life. Merry Christmas to savers all around the country, courtesy of Dr. Bernanke et al.
As for the markets, stocks rallied a bit on the news, but as we have seen with Fed policy lately, diminishing returns kicked in and traders decided to sell the rally. By the close, the Dow Jones Industrial Average was down just 2 points to finish the day at 13,245. The S&P 500 was up a fraction to close at 1428. Gold was up $3.80 to trade at $1713, while oil was up $1.02 to trade at $86.81 per barrel WTI.
The Fed has done all it can do (many would say way too much), so now it’s up to the politicians. I know how disturbing it is every time I say that. But remember, there is always opportunity amongst the chaos.
Have a nice evening everyone.
