Here we go folks, the trigger hasn’t been pulled but the Fed said they would and are looking to at the appropriate time. Gold shot up as soon as it was announced, which means the market believes they will use “quantitative easing”. Printing money to buy debt. The US dollar also declined on the news. You must remain watchful, for as soon as they pull the trigger, know inflation, maybe hyperinflation is on the way.
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Fed Signals It May Take Further Steps to Boost Economy
The Federal Reserve on Tuesday inched closer to fresh steps to bolster a sluggish U.S. recovery, saying it stood ready to provide more support for the economy and expressing concerns about low inflation.
The U.S. central bank’s policy-setting panel made no shift in monetary policy at the end of a one-day meeting, keeping overnight interest rates near zero, but it opened the door wider to pumping more money into the economy.
“The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” the Fed said in a statement.
After its meeting on August 10, the Fed had simply said it would “employ its policy tools as necessary.” The Fed underscored its concerns over slowing inflation in its statement on Tuesday, saying the underlying rate of inflation was below levels consistent with its mandate for price stability and full employment.
“With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time,” it said.
U.S. stock prices rose after the statement, while prices for U.S. government debt fell, likely reflect some disappointment the Fed did not move more decisively. The dollar extended earlier declines against the euro.
“The Federal Reserve has taken another step, albeit a half step, in recognizing the unusually sluggish economic and employment outlook and related need for additional policy measures,” said Mohamed El-Erian, co-chief investment officer at bond fund PIMCO.
Kansas City Federal Reserve Bank President Thomas Hoenig dissented for a sixth consecutive time, reiterating his view that the central bank could allow its balance sheet to shrink and that a vow—repeated Tuesday—to keep borrowing costs exceptionally low for an extended period was no longer warranted.
After cutting the overnight federal funds rate to near zero in December 2008, the Fed launched an asset-buying program in a further effort to lower borrowing costs and help the economy. In the end it bought $1.7 trillion in longer-term U.S. government debt and mortgage-related bonds.
The Fed’s easy money policies and the prospect of further easing have driven up the value of currencies in other countries, including Japan and Brazil, as investors moved out of the dollar in search of higher returns.
Japan intervened last week to weaken the yen, which had surged to a 15-year high against the dollar, and emerging markets are seeking ways to control huge capital inflows.
The painful U.S. recession ended in June 2009, but the recovery has lost momentum this year with growth tapering to an anemic 1.6 percent annualized rate in the second quarter.
Other economic data over the summer also proved surprisingly weak, prompting analysts to cut their growth forecasts for the second half of the year.
A Reuters poll on Sept. 8 found analysts looking for growth in the third quarter to come in at just a 1.8 percent rate.
While the tone of the data has improved in recent weeks, the economy’s sluggish pace and a deeply troubled job market have kept alive fears of another downturn.
The unemployment rate stands at a lofty 9.6 percent and private sector hiring has been tepid.
Acknowledging the flagging recovery, the Fed opened the door to more easing at its last gathering on Aug. 10 when it announced it would resume purchases of longer-term Treasury securities to prevent its portfolio from shrinking as the mortgage-linked debt it holds matures.
Fed Chairman Ben Bernanke said late last month that the central bank was ready to provide more stimulus if needed, but that policymakers would only act if the outlook deteriorated significantly.
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Focus: Update: Gold Resumes Uptrend Following FOMC Statement
(Kitco News) — Gold resumed its uptrend after Federal Reserve policy-makers said Tuesday that they are willing to undertake further action to prop up the economy, with the metal moving to record highs.
Still, some cautioned that gold could be due for a corrective pullback in a market that already has so much bullish enthusiasm.
Gold finished the Comex pit session weaker, which was blamed largely on profit-taking ahead of the release of a post-meeting statement from the Federal Open Market Committee. As most expected, the Fed did not undertake quantitative easing, in which it would buy debt instruments such as Treasury bonds to help push down long-term yields. However, the Fed language was construed to mean this is a distinct possibility down the road, supporting gold prices.
“The FOMC will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and return inflation, over time, to levels consistent with its mandate,” the statement said.
This demonstrated a bias toward easing, said a report from Nomura Global Economics. “Unless the incoming data improves significantly, we believe a resumption of (quantitative easing) at the November FOMC meeting is now quite likely,” Nomura said.
Around 3:30 p.m. EDT (1930 GMT), spot gold was up $6.90 to $1,285.40 an ounce, compared to $1,272 about 10 minutes ahead of the Fed statement. December gold on the Comex division of the New York Mercantile Exchange was $6.90 higher at $1,287.70, compared to $1,273.30 ahead of time. In after-hours trading following the Fed statement, the December futures went on to a high of $1,290.40; that is a fresh record for a most-active Comex contract.
“They all but confirmed (quantitative easing),” said Zachary Oxman, managing director of TrendMax Futures. “That’s extremely weak for the dollar and very strong for gold, as you saw a big spike up through $1,290. I think we see $1,300 before the week is out and I am still thinking of $1,400 to $1,500 by year-end.”
The Fed statement left the U.S. dollar under pressure, adding support to gold, said Bob Haberkorn, senior market strategist with Lind-Waldock. The metal often moves inversely to the dollar, bought as a hedge against greenback weakness and because a lower dollar makes commodities cheaper in other currencies and thus helps demand.
“I anticipate gold could get through this $1,300 pretty quickly,” Haberkorn said.
Some market participants had already been pricing in potential for quantitative easing in recent sessions, said Michael Gross, broker and futures analyst with OptionSellers.com.
“So when we actually got the announcement that they weren’t doing it now but could in the future, it’s pretty much what everybody expected them to say,” Gross said. “So I don’t think it’s a big bullish surprise for gold by any means. It looks like we got a little lift from it because the dollar is falling more sharply than a lot of people expected it would.”
Now, technical considerations might be limiting gold’s upside in the short term in a market that is “tremendously overbought,” Gross said. “We think there is such a long position in gold right now that it may have a hard time trading substantially higher before it’s had a little correction first,” he said. Still, he also looks for gold to eventually hit $1,300, especially if the dollar weakens further on additional quantitative easing.
The most recent data from the Commodity Futures Trading Commission showed that managed-money accounts were net long by 227,384 lots for futures and options combined as of Sept. 14, approaching the high of 238,943 from last October. When large speculators become excessively long, traders sometimes view this as a hint that a short-term reversal might be in order as some traders sell to book profits and the market runs out of potential buying ammunition.
Ahead of the Fed meeting, most analysts said they did not expect quantitative easing as soon as Tuesday, with policy-makers instead likely to wait to see whether there is more significant deterioration in the economy. Thus, many had expected that the lack of a quantitative-easing announcement might have led to some profit-taking that would have pressured gold, rather than the price rise that occurred.
There was profit-taking, but this seemed to have already run its course in the run-up to the FOMC statement, said Michael Zarembski, senior commodities analyst with optionsXpress. Had gold been higher at the time, he said, the metal may well have turned lower. But with gold already on the defensive, that meant lower prices were seen as a bargain-hunting opportunity, he said.
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Fed Keeps Rates Unchanged, Says Recovery Modest
Reuters
The Federal Reserve on Tuesday once again left its target on interest rates unchanged, in the range of 0-0.25%, saying the economy is not yet exhibiting enough growth to support higher rates. The Fed said it continues to expect the recovery to be modest, and noted that the improvement in employment and output has actually slowed. Left on the table, as expected, was the potential for so-called quantitative easing, whereby the central bank would purchase U.S. Treasury’s to increase the money supply.
The Fed also expressed concerns about the low level of inflation.
“Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the long run, with its mandate to promote maximum and employment and price stability,” the Fed said in its decision.
The Fed also made mention of weak housing starts, on the same day the Commerce Department released robust numbers on that front.
But the fact remains that the U.S. economy cannot grow on its own – that is, without artificial stimulus from the government – until the jobs market recovers and, by extension, the real estate market improves. While there are some pockets of strength on the homes front, the broader housing market remains very weak, and the jobs market is horrendous.
The Fed said it expects the fed funds rate to remain at “exceptionally low levels” until signs of improvement emerge.
The stock market has reacted somewhat favorably to the announcement, with the Dow Industrial higher by 30 points from the pre-announcement level of down 10 points. Gold is higher and Treasury yields are lower.
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