Bernanke's Excuses Portend a Huge Stock Market Rally, Even for Large Cap Stocks

For several years now, the Federal Reserve has been buying up Treasury bonds in an attempt to boost the economy with monetary stimulus.

The common wisdom among the punditocracy is that the Federal Reserve’s announcement of its new, open-ended bond-buying program will provide a big boost to President Obama’s reelection by juicing the stock market and economy.

WASHINGTON – The Federal Reserve is expected to announce a fresh round of bond buying on Wednesday as part of its efforts to support a fragile economic recovery threatened by political wrangling over the government’s budget. The central bank looks certain both to extend its purchases of mortgage-backed debt and replace another expiring stimulus program with a new bout of money creation.

WASHINGTON — The Federal Reserve ramped up its stimulus to the economy on Wednesday, expressing disappointment with the pace of recovery in employment as contentious U.S. budget talks heighten uncertainty about the outlook. The central bank replaced a more modest stimulus program due to expire at year-end with a fresh round of Treasury purchases that will increase its balance sheet. It committed to monthly purchases of US$45-billion in Treasuries on top of the US$40-billion per month in mortgage-backed bonds it started buying in September.

The Federal Reserve acknowledged that the economy is growing more slowly than it expected. But it plans to complete its $600 billion Treasury bond buying program by the end of the month. The Fed said it believes the main causes of the slowdown, such as high gas prices, are temporary and announced no new efforts to stimulate the economy.

Article written by Prieur du Plessis, editor of the Investment Postcards from Cape Town blog.By Cees Bruggemans, Chief Economist of FNB.Will the SARB start tightening interest rates early or late? Would the SARB be more compassionate this time, given modest growth and a lingering output gap? Or what?

The Federal Reserve is all but certain to maintain the pace of its $600 billion Treasury bond-buying program because unemployment remains high and sinking home prices are eroding Americans' wealth. The bond purchases are intended to lower interest rates, encouraging spending and raising stock prices.» E-Mail This     » Add to Del.icio.us

The Federal Reserve said it will maintain the pace of its $600 billion Treasury bond-buying program because a slowly improving economy is still too weak to bring down high unemployment. The bond purchases are intended to lower long-term interest rates, lift stock prices and encourage higher spending.» E-Mail This     » Add to Del.icio.us