Posts
After months of speculations, the Fed eventually announced to buy $600B of longer-term Treasury securities by the end of 2Q11, a pace of about $75B/month. The program roughly matches with consensus of $500B in 6 months ($80B/ month). The Fed also moved a bit closer to inflation targeting by mentioning it will employ necessary policy tools to ensure that inflation is 'at levels consistent with its mandate'. Financial markets were volatile after the announcement but, on net, investors viewed the program positively as indicated in gains in stock markets and growth currencies. The commodity sector was mixed with oil price surging while precious and base metals sliding on profit-taking.
At the accompanying statement, the Fed said that progress towards 'a gradual return to higher levels of resource utilization in a context of price stability' has been 'disappointingly slow'. Therefore, policymakers decided to expand the balance sheet through purchases of $600B of long-term Treasury securities over 8 months by the end of June 2011. According to a statement issued by the New York Fed, 86% of the purchases will be allocated in the 2.5- to 10-year maturity with an average duration of 5 to 6 years. The Committee will' regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability'.
The Fed also kept the policy rate unchanged at 0-0.25% and retained the reference that current economic developments are likely 'to warrant exceptionally low levels for the federal funds rate for an extended period'.
In the concluding statement, the Fed pledged it would 'employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate' . While an explicit inflation target is not mentioned in statement. Chairman Ben Bernanke said on October 15 that the inflation rate consistent with the Fed's mandate was close to, or a bit below 2%. We believe the Fed will endeavor to maintain inflation rate close to this level.
USD declined against major currencies and Fed's additional liquidity injection should result in dollar's depreciation. WTI crude oil rallied to a 6-month high of 85.36 before settling at 84.69, up +0.94%. Price climbed higher in Asian session today as stock markets advanced. Gold was volatile ahead of the FOMC announcement and price tumbled to as low as 1325.5 shortly after the result. However, price recovered and settled at 1337.6, down -1.42%. Gold price strengthened with price approaching 1360 in Asian session today. Others in the precious metal complex moved in similar patterns but uptrends were resumed today.
Latest Analysis from this Author
Commodities Retreat after Rallies (Friday, 05 November 2010 07:23 ET)Gold Approaches 1400 as QE2 Stokes Inflation (Friday, 05 November 2010 00:27 ET)Economic Calendar 11/5/10 (Thursday, 04 November 2010 13:19 ET)Commodities Strengthen as USD Falls Across the Boa... (Thursday, 04 November 2010 06:55 ET)Gold Daily Technical Outlook (Thursday, 04 November 2010 06:05 ET)Silver Daily Technical Outlook (Thursday, 04 November 2010 06:04 ET)Crude Oil Daily Technical Outlook (Thursday, 04 November 2010 06:04 ET)Natural Gas Daily Technical Outlook (Thursday, 04 November 2010 06:03 ET)Economic Calendar 11/4/10 (Wednesday, 03 November 2010 17:03 ET)Crude Tumbles Despite Declines in Total Petroleum ... (Wednesday, 03 November 2010 11:19 ET)
No comments:
Post a Comment