Wednesday, April 27, 2011

Fed Changes Nothing, QE2 To End On Schedule, Unanimous Vote

The Fed announced its decision to hold rates steady and stay on course with QE2 at 12:30 PM ET. The vote to stay the course was unanimous.
Inflation has picked up and the Fed now says the economic recovery is proceeding at "a moderate pace," but the central bank still said the inflation pickup will be temporary and the jobs market is still a concern. The decisions were widely expected. The FOMC made only few changes to the language of the policy statement it issued in March and did not give guidance on the outlook of policy after the end of quantitative easing. The FOMC repeated that rates are likely to stay low for an "extended period."...

There wasn't any mention of a QE3 program coming down the pipes, which was also expected. Handicappers are expecting the Fed to hold off for a while, and step in if the economy slumps due to longer rates (and mortgage rates) going higher. However, the cental bank is already reinvesting any cash coming from its holdings of mortgage-backed securities into Treasury securities - making for a "QE Lite."

Gold, after being knocked down to $1,504 just after 10:00 and recovering to a little below $1,510, took off like a shot on the news but tailed back after hitting a day's high of $1,516.00. Rather than being anticlimactic, the announcement did remove some uncertainty lurking in the gold market. The U.S. Dollar Index, after intitally jumping to 74, was knocked down to 73.7 on the news.


  1. In the decade I have been watching precious metals, they usually drive them down when something really bad might happen soon. As big as the drive down is this time, it must be a humdinger.

    What possibilities are there?
    1. Japan is about to sell off their American treasuries to pay for repairs.
    2. China is about to sell off their American treasuries for spite. They hold grudges a long time.
    3. The Muslim "chatter" includes a small nuke already smuggled into America.

  2. A decade's a long time; congratulations for sticking with them. To be honest, I wish I had been there with you.

    As for what's coming next, the first one looks the most plausible. The Chinese rulers may want to sell off their Treasuries out of spite, but they're too schooled in acting businesslike to do so. Dumping Treasuries would take a real chunk out of their reserves, which would be profoundly unbusinesslike fo them. I have heard of a proposal for the People's Bank of China to get rid of two-thirds of its $3 trillion' worth of foreign exchange, and put the proceeds in a sovereign-wealth fund, but the plan was for them to just let the Treasuries and other securities mature and redirect the proceeeds. Those threats from mainland Chinese military figures are little more than bluster.

    As for the third possibility, it would spark a huge jump in gold - but all hell would break lose. If terrorists detonate a small nuke in America, then it'll be all-out war. We'd all smaell a draft coming.

    The only possibility I can think of is a crimp in the recovery, which won't be good for the stock market. "Dr. Copper"'s been hit hard too.