REUTERS/James Lawler DugganU.S. Federal Reserve Chairman Ben Bernanke takes his seat prior to delivering his semi-annual monetary policy report to Congress before the House Financial Services Committee in Washington, July 17, 2013.
Almost no one saw this coming.
First, the scoreboard:
- Dow: 15,676.9, +147.2 +0.9%
- S&P 500: 1,725.5, +20.7, +1.2%
- NASDAQ: 3,783.6, +37.9, +1.0%
And now the top stories:
- No taper. The Federal Open Market Committee (FOMC) shocked the markets by announcing that it would continue its monthly purchases of $US85 billion worth of Treasury Securities and mortgage bonds. Most economists were looking for a reduction, or tapering, of around $US5 to $US10 billion dollars.
- “The Committee sees the downside risks to the outlook for the economy and the labour market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market,” said the Fed in its FOMC statement.
- “As today’s decision underscores, asset purchases are not on a preset course,” Fed Chairman Ben Bernanke said during his post-FOMC press conference.
- Markets went nuts. The Dow and S&P 500 surged to new all-time highs. The interest rates collapsed, the dollar tanked, and gold surged.
- During the press conference, Bernanke said that the tightening of monetary policy (i.e. raising the Fed’s benchmark rate) may not begin until the unemployment rate is considerably below 6.5%. He also said that an inflation rate floor could be a sensible modification to its forward guidance policy.
- “Given that the financial markets had priced in the beginning of a QE taper today, policymakers had a free option to proceed without a major shock to the markets,” said Deutsche Bank’s Joe LaVorgna after the news. “Given that they did not take this option, the likelihood of an October taper is reduced — and so at this juncture, the first move now appears to be in December, which is when we will get another round of updated forecasts and another press conference.”
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