Surprise Move By Fed Met With Widespread Cheer
Coinciding FOMC statement removes last meeting's claim that the Fed expects the recession to end this year, replaces it with more somber language, and dispels inflation concerns.
CNBC:
Fed's Surprise Move Sends Markets a Mixed Message
The Federal Reserve’s decision to finally enter the long-end of the Treasury market was taken as a mostly positive sign by the markets but it is probably making something of a bad statement on the health of the economy.
On the face of the things, the move to buy up to $300 billion in longer-term Treasurys over the next six months-which will encourage lending by lowering interest rates-turns Fed talk into action. It has been jawboning the market about making such a move for about six months.
The FOMC’s announcement Wednesday sparked an immediate rally in Treasurys, pushing down yields across the board, as investors flocked to the safe trade...
The Fed’s move is also meant to push down mortgage rates and borrowing terms in general, essentially doing an end run on banks and other lenders that are reluctant to extend credit as they deleverage amid a deep recession. Key to that strategy is lowering mortgage rates to help restart the moribund housing sector.
“It's a big number,” said Zach Pandl, economist at Normura International. “This is going to move mortgage rates.”
...Economists say the Fed’s latest steps have a negative dimension: The more dramatic the move, the more it says about the depths of the economic problems.
“It does suggest their outlook is a little bit more negative than Bernanke comments Sunday. There are no “green shoots here,” said Pandl, referring to the Fed Chairman’s interview on “60 Minutes”, when he suggested there were some cause for optimism about a recovery. “The description of the economy is quite clear. The FOMC did not point to any improving data."
Instead, the Fed referred to job losses, weaker sales prospects and difficulty obtaining credit.
Bloomberg:
U.S. Stocks Gain, 10-Year Treasury Yields Fall Most Since 1962
U.S. stocks and Treasuries surged and the dollar tumbled after the Federal Reserve unexpectedly announced plans to buy $1 trillion of bonds in an effort to lower consumer borrowing costs and end the recession.
The Standard & Poor’s 500 Index added 1.4 percent, extending its rally since last week’s 12-year low to 16 percent. Yields on 10-year notes dropped the most since January 1962 after the central bank said it will spend $300 billion buying Treasury debt and up to another $750 billion on bonds backed by government-controlled mortgage companies. The dollar sank the most against the euro since September 2000...
‘Big Positive’
“This is definitely a big positive,” said Noman Ali, a Toronto-based money manager at MFC Global Investment Management whose group manages $20 billion of U.S. equities. “This will bring down the risk premium and interest rates for corporate borrowers as well. That helps credit growth and hopefully helps turn the economy.”
Citigroup Inc. and Bank of America Corp. each jumped more than 17 percent, leading a gauge of financial shares in the S&P 500 to a 6.9 percent rally and the highest level in a month. The index has surged 49 percent since March 6.
CNBC:
Fed's Surprise Move Sends Markets a Mixed Message
The Federal Reserve’s decision to finally enter the long-end of the Treasury market was taken as a mostly positive sign by the markets but it is probably making something of a bad statement on the health of the economy.
On the face of the things, the move to buy up to $300 billion in longer-term Treasurys over the next six months-which will encourage lending by lowering interest rates-turns Fed talk into action. It has been jawboning the market about making such a move for about six months.
The FOMC’s announcement Wednesday sparked an immediate rally in Treasurys, pushing down yields across the board, as investors flocked to the safe trade...
The Fed’s move is also meant to push down mortgage rates and borrowing terms in general, essentially doing an end run on banks and other lenders that are reluctant to extend credit as they deleverage amid a deep recession. Key to that strategy is lowering mortgage rates to help restart the moribund housing sector.
“It's a big number,” said Zach Pandl, economist at Normura International. “This is going to move mortgage rates.”
...Economists say the Fed’s latest steps have a negative dimension: The more dramatic the move, the more it says about the depths of the economic problems.
“It does suggest their outlook is a little bit more negative than Bernanke comments Sunday. There are no “green shoots here,” said Pandl, referring to the Fed Chairman’s interview on “60 Minutes”, when he suggested there were some cause for optimism about a recovery. “The description of the economy is quite clear. The FOMC did not point to any improving data."
Instead, the Fed referred to job losses, weaker sales prospects and difficulty obtaining credit.
Bloomberg:
U.S. Stocks Gain, 10-Year Treasury Yields Fall Most Since 1962
U.S. stocks and Treasuries surged and the dollar tumbled after the Federal Reserve unexpectedly announced plans to buy $1 trillion of bonds in an effort to lower consumer borrowing costs and end the recession.
The Standard & Poor’s 500 Index added 1.4 percent, extending its rally since last week’s 12-year low to 16 percent. Yields on 10-year notes dropped the most since January 1962 after the central bank said it will spend $300 billion buying Treasury debt and up to another $750 billion on bonds backed by government-controlled mortgage companies. The dollar sank the most against the euro since September 2000...
‘Big Positive’
“This is definitely a big positive,” said Noman Ali, a Toronto-based money manager at MFC Global Investment Management whose group manages $20 billion of U.S. equities. “This will bring down the risk premium and interest rates for corporate borrowers as well. That helps credit growth and hopefully helps turn the economy.”
Citigroup Inc. and Bank of America Corp. each jumped more than 17 percent, leading a gauge of financial shares in the S&P 500 to a 6.9 percent rally and the highest level in a month. The index has surged 49 percent since March 6.