This week, Ben Bernanke grabbed the American economy by the collar and told it to buck up. At least, that’s what quantitative easing round 3 will try to do. In QE3, the Federal Reserve has announced that it will be buying $40 billion in mortgage-backed securities every month until the labor market “improves substantially.” The funds rate will remain unchanged at “exceptionally low levels” until mid-2015.
What is drawing a lot of attention is that the Fed seems to be willing to indefinitely extend QE3 “if the outlook for the labor market does not improve substantially.” So far, there doesn’t seem to be any metric which will determine when substantial improvement has been met. With QE efforts seeing diminishing returns, gobbling up $40 billion in MBS has raised a lot of eyebrows. Jeff Macke at Breakout calls it “an entirely different, frightening animal.”
Market reaction was STRONG. The stock markets exploded. Thursday, the S&P closed up 1.63 percent, and the Dow ended up 1.55% and Nasdaq finished up 1.33 percent. Gold jumped to $1,767 an ounce on fears of inflation, but inflation could mean growth. Silver finished up over 4 percent at $34.63.
Doug Roberts, chief investment strategist at Channel Capital Research, weighs in with “What QE3 does is inject liquidity. Right now what you do is follow the fed.”
In its latest economic projections, the Fed has said there will be growth, but it will be slow. It expects the jobless rate to stay about 7 percent into 2014.
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