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Last week Chairman Bernanke and the Fed launched another aggressive stimulus program, QE3, saying that they will buy $40 billion in mortgage debt per month and continue to purchase assets in order to boost growth and reduce unemployment. He also announced that the Fed is not likely to raise rates from the current rock bottom lows until at least mid 2015, vs. 2014 as previously stated.
Ill make a couple of observations about the justifications the Fed offered for its action:
- One is that the Feds belief that the economy cannot improve fast enough without their help – a point which I think will be highly debated. U.S. economic weakness has been due principally to a slowdown in manufacturing, largely attributable to the weakness in Asia and Europe. Whats interesting is that housing has gained momentum despite the Feds news. Autos and consumer spending have both held up and improved over the last several months.
- The other is that the Fed reiterated its belief that inflation will not move higher than 2% between now and 2015, giving them scope to do some more easing.
Market Reactions were Mixed