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Back to the Races, QEternity Lives!

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September 18, 2013
Ron DeLegge, Editor

What the market wants is what the market gets. And the Federal Reserve gave both the stock and bond market another shot of steroids that it didnt need.

The Federal Open Markets Committee (FOMC) reaffirmed its commitment to $85 billion in monthly bond purchases or "quantitative easing" (QE) by saying:

"The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate."



The 10-year yield on U.S. Treasury bonds (CBOE:^TNX) fell over 5% to 2.70% while U.S. stocks (NYSEARCA:SCHB) jumped over 1% along with a 3.5% gain in gold (NYSEARCA:GLD).  

Rate sensitive industry sectors like REITs (NYSEARCA:VNQ) and utilities (NYSEARCA:XLU) rallied around 2.5% on the news of continued QE.

The FOMC also decided to keep the target range for the federal funds rate between 0% to 0.25% so long as the nationwide unemployment rate remains above 6.5%.

According to a Bloomberg survey, 65% of economists expected the Fed to scale back on QE.

For now, the asset bubbles created by the Fed's experimental QE will be allowed to grow a little more for a little longer. QEternity lives!

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CommentsAdd Comment

Gravy Train said on September 18, 2013
  ....make that three concerns: 3) higher interest rates. People (including the government) can't pay off their debts if rates spiral higher and completely out of control. Student loan debt is already over $1 trillion.
 
 
Perpetually Wrong by Mistake said on September 18, 2013
  The Fed has only two concerns: (1) deflation, and (2) that everyone pays their debts. That's it. They care about your employment status only in that it affects your ability to make interest payments on debt. Todays FED decision not to taper is a scary statement about deflation.
 
 
BakerGirl said on September 18, 2013
  grant8: good analogy for describing the Fed.
 
 
JARNELL said on September 18, 2013
  QE will be Bernanke's legacy just as the financial crisis & housing bust is Alan Greenspan's legacy. The more things change the more they stay the exact same.
 
 
grant8 said on September 18, 2013
  The Fed had a chance to do tapering and they didn't. This was the one time the entire world was expecting it and they didn't pull the trigger. It seems like the drug dealer has itself become addicted to dealing.
 
 
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