The Federal Reserve, FED, delivered according to expectations and launched another aggressive stimulus program on Thursday. FED would pump $ 40 billion monthly into the US economy it sees a sustained upturn in the employment. It is the first time that FED ties its controversial bond buying directly to economic conditions. It represents a big escalation in US efforts to fight a weak jobs market.
Immediately upon FED’s announcement global markets rallied. US stock exchanges raised to a five years high followed by a 2,5 % jump in stock prices in Asia this morning. Commodity and precious metal prices are skyrocketing led by oil, copper, gold and silver. The dollar is falling against all currencies. Euro/USD bounced back through the 1,30 level and is trading at 1.3024. USD/Yen is 77,63. Gold hit a six month high at 1765 as investors braced for higher inflation. Brent crude is 116,50 also triggered by increased tension in the Middle East.
The new program would be concentrated on purchase of mortgage-backed securities, so called MBS, to encourage the housing sector which FED chairman, Ben Bernanke, called “the missing piston” in the US recovery. Bernanke said that the employment situation remains of grave concern. FED further decided to stick to its low interest rates policies at least to 2015, half a year longer than earlier announced.
The new program would be met with criticism. Republicans see FED’s action as an effort to help President Obama’s reelection and as a confirmation of failed economic policies. The stimulus measures would weaken the dollar. Many observers see FED’s initiative as a clear token of currency manipulation making American products cheaper in an effort to increase US exports and create jobs. If FED’s measures on the other hand succeed in turning the US economy around, it would spur the whole global economy again with US as its major engine. In the first place, however, FED’s initiative have given global stock market investors and precious metal believers a reason for jubilation.
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