As the Fed meeting approached over the last few days, I began to contemplate it with increasing unease. Gold had already come so far over the past few weeks, and had so heavily discounted substantive action by the FOMC, that I feared a “buy the rumor, sell the news” event was in the offing.
For gold to move higher, Bernanke & Co. had to far surpass the market’s expectations, and those expectations were already sky-high. The odds were against them clearing that bar.
Boy was I wrong.
As you’ve no doubt heard, Thursday the Fed dropped an open-ended, bond-buying bombshell onto the markets. The details: $40 billion in mortgage-backed securities, in addition to continuing its “Operation Twist” program, for a total of $85 billion…monthly…in bond purchases.
The duration of the program: As long as it takes. And then some.
Specifically, the Fed noted that “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 short, the program is open-ended. They will continue to buy bonds, at this rate, for the foreseeable future.
And if that doesn’t work, they’ll ramp it up until it does work.
Then, the policy statement continued, “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.”
Translation: Not only will we continue to print money as long as it takes, and to whatever degree necessary, we’ll actually continue these easy-money policies even after the economy recovers.
You know, they didn’t call him “Helicopter Ben” Bernanke for nothing.
Naturally, the markets cheer the news.
It would be hard to imagine the Fed delivering a more-explosive policy statement without using phrases like “throwing money around” and terms like “drunken sailor.”
As one would expect, the markets roared higher Thursday on the announcement. The stock market soared, with the Dow gaining 206.51 points (1.55%) and the Nasdaq leaping 41.52 points (1.33%).
Considering that the Fed action is the result of persistent economic malaise and the central bankers’ growing desperation, the stock market reaction was undeserved and unlikely to last. It was also a bit scary to witness — kind of like feeding a hyperactive child a Red Bull.
Un-nutritious, and the last thing he needs.