Fed Announces QE3
City Index September 13, 2012 11:05 PM
<p>The Federal Reserve announced a third phase of quantitative easing this evening in an effort to speed US economic growth and improve hiring. In the […]</p>
The Federal Reserve announced a third phase of quantitative easing this evening in an effort to speed US economic growth and improve hiring.
In the culmination of a two day FOMC meeting, Ben Bernanke announced that the Fed will expand its purchases of long term securities to the tune of $40bn per month on a move that had no expiry date i.e. open ended. The Fed also said that if the labour market does not improve substantially, they will continue to purchases mortgage backed securities (MBS) as well as undertake additional asset purchases and employ other tools that may be appropriate.
Essentially the Fed delivered on what much of the market had been hoping for in the last two months, an increase in asset purchases and openly admitting that they may increase the aggressiveness of the scale of purchases if the US labour market does not improve. The Fed also left interest rates at zero to at least through mid-2015, an extension of one year of previous pledges.
The immediate reaction in equity markets was bullish. The Dow Jones immediately rallied as a knee jerk reaction alongside that of Gold whilst the US dollar saw pressure.
The key now will be whether the equity moves we have seen has long term motivations. The traditional buy the rumour sell the fact scenario is still a danger but the key line for me is the fact whilst the Fed has immediately increased asset purchases – this starts tomorrow – they have also left the door open for more purchases if the labour market does not improve. One issue is that we don’t know the scales that would dictate further action?
All eyes now on the Bernanke press conference as the Fed Chairman attempts to explain the rationale behind these moves and spells out the fine print as to what conditions would dictate further action or indeed a postponement of the additional measures announced today.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.