The FOMC has come in with no rate change as we had expected. When it is already at a near-zero rate policy, there was no other outcome. The Fed Funds Target Rate was left at 0.00% to 0.25%, and the discount rate was left at 0.50%. But where this gets interesting is the amount that the Federal Reserve is increasing the balance sheet via massive securities purchases. Ben Bernanke is about to inject a massive amount of additional cash into the system.
The Fed will buy an additional $750 billion worth of agency mortgage backed securities. It will also purchase an additional $100 billion in agency debt instruments, and it will purchase an additional $300 billion worth of long-term Treasury securities over next 6-months.
The FOMC has also pledged to keep Fed Funds at exceptionally low levels for quite some time. It said that the economy continues to contract and the near-term is weak. The Fed also sees a gradual resumption of sustainable economic growth and inflation should be subdued.
The magnitude here is that the mortgage backed security purchases are now more than doubled. Equities have launched as a result with the DJIA up 120 points to over 7,500 and the S&P 500 now up 37+ to 1499. Treasury yields in 10-year and 3-year notes have tanked as bond prices have gone up. The dollar has also tanked, and gold is up higher as a result.
The inflation mongers will be out in full force by tomorrow morning.
JON C. OGG
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