Desperation Bazooka Tactics; Gold Soars Following Huge Headfake
The Fed came out blazing today with desperation bazooka tactics, not that it will matter one iota to jobs or housing (because it won't).
Specifically, the Fed announced it would ...
- Increase Mortgage Backed Securities (MBS) at Pace of $40 Billion Per Month
- Extend Operation Twist
- Increase Longer-Term Securities by Total of $85 Billion Per Month Through December
- Keep the target range for the federal funds rate at 0 to 1/4 percent
- Anticipate that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
Please consider a few snips from the FOMC Official Press Release.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it 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. These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
Desperation Bazooka Tactics
This seems like desperation bazooka tactics. Specifically, the Fed is in a panic state over jobs.
It also leaves me wondering, if this does not work (and it won't), what else can the Fed do?
Promise to hold rates low forever? Buy every treasury and agency?
After the market makers cleared every stop to the downside, gold blasted higher.
That is one hell of a downside headfake, to the tune of $40, after which gold moved $75 in the other direction.
US Dollar's Response
Curiously, the US dollar barely budged in comparison, but is heading lower after initial wild gyrations in both directions.
In contrast, gold never looked back following the initial and certainly unwarranted $40 drop.
Mike "Mish" Shedlock, a registered investment advisor representative at SitkaPacific, blogs at globaleconomicanalysis.com.
Posted by Danny B on 09/14/12 09:15 PM
You can't claim that Bernanke doesn't have a sense of humor.
"the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. "
He's going to print money until he sees better price stability.
Ron Paul too claims that the FED has lost control;
Click to view link
Not a big surprise. The FED never had the control over jobs that many people believed.
The Euro debt is evolving. Originally, lots of debt from one country was held by foreign banks. Gradually, the investors are unloading foreign debt and buying domestic debt. With Draghi's latest proclamation, the private investors will have seniority and the taxpayer will have to get in line in the event of a default.
This will buy a little time but, Italy is next at bat. They are the third largest bond market in the world.
Japan is the basket-case but, UK and Ireland are the worst in the West. It looks like the City of London banks are ready to collapse.
Click to view link
Time will tell.
Posted by MetaCynic on 09/15/12 12:39 AM
The beatings will continue until the morale improves.