The Federal Reserve launched another aggressive stimulus program on Thursday, saying it will buy $40 billion of mortgage debt per month and continue to purchase assets until the outlook for jobs improves substantially.
KEY POINTS:
* "If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement.
* In an additional step that reflects just how concerned Fed officials have become about the health of the economy, policymakers said they would not likely raise rates from current rock-bottom lows until at least mid-2015. Previously, it had set such guidance at late 2014.
COMMENTS: ANTHONY VALERI, FIXED INCOME STRATEGIST, LPL FINANCIAL, SAN DIEGO:
"The Fed has under-delivered here. This not full-blown QE3. They have a lot of flexibility with this statement. They could buy more Treasuries and MBS if the economy worsens. This is dipping their toes in the water with QE3.
"The long end of the bond market is weaker because there were expectations of a longer-dated Treasuries purchase announcement from the Fed. That's why we are seeing a reversal here after a pretty good 30-year bond auction."
JEFF SAVAGE, REGIONAL CHIEF INVESTMENT OFFICER FOR WELLS FARGO PRIVATE BANK IN PORTLAND, OREGON:
"The markets are at a very different place at the start of QE3 versus QE2 and QE1 and it will just get harder to continue to push higher using this same tool again. So there is no question the markets are not disappointed but they are certainly not going to get propelled off of these numbers. A lot of folks were expecting even less (from the Fed). A number of people were looking at statistics beyond the jobs report that would have made it hard for the Fed to do anything here.
"In total, most folks maybe expected some Fed action, but I do say that reasons beyond unemployment, there wasn't a lot of reason to do this and there were a lot of people focused on that as well. This is buying more time to allow the true structural changes that need to be made happen and this is stretching that time out further. The comment about going to mid-2015 was what a lot of people were expecting and that only and then they went on and did the purchases as well. It's more than folks were expecting."
GENE McGILLIAN, ANALYST, TRADITION ENERGY, STAMFORD, CONNECTICUT
"It doesn't look like the oil market was very excited by this Fed announcement. It seems like there has been a little bit of 'buy rumor, sell fact.'
"At first sight it doesn't seem strong enough to generate any real buying."
BRAD BECHTEL, MANAGING DIRECTOR, FAROS TRADING, STAMFORD, CONNECTICUT:
"We got QE3, though I think it's a little less than what the market was hoping for. I think markets will read this as a positive sign, so risk should rally. But I don't necessarily think we'll have raging euphoria for it. It's positive, but not extremely positive. So the dollar's reaction should be mixed. The program in Europe is more balance sheet intensive, so at the margin you could see the dollar gain a bit against the euro but struggle against the emerging market currencies."
WILLIAM LARKIN, FIXED INCOME PORTFOLIO MANAGER, CABOT MONEY MANAGEMENT, SALEM, MASSACHUSETTS:
"They are definitely stepping up. It is a little bit more than I had expected. The problem is there is a decay in monetary policy. We are already at extreme levels, so basically if I make the new mortgage rates 20 basis points cheaper you don't get the bang for the buck. Also it is creating a lot of harm right now, and the harm is a lot of individuals are starving on the fixed income side that live off fixed income vehicles, like CDs and savings.
"Also, it creates an inflation outlook concern because if you are doing it for this extreme for this length of time, my biggest question is what is going to happen to inflation in two years? You have a capital spending problem and this creates more uncertainty."
JOHN KILDUFF, PARTNER AT AGAIN CAPITAL LLC IN NEW YORK:
"The Federal Reserve has thrust another layer of monetary support to market prices. The seemingly open-ended purchase of mortgage-backed securities at $40 billion per month gives the markets the QE3 that had been priced in to a great degree.
"The Fed's policy moves will likely push oil prices higher, but you must be mindful that the policy considerations are a reaction to underlying conditions that are not favorable to a robust demand environment for oil, at the same time.
"These monetary policies are unlikely to ultimately overcome the deteriorating demand fundamentals."
CARL LARRY, PRESIDENT, OIL OUTLOOKS, NEW YORK, NEW YORK:
"I think this action is a reflection of the Fed understanding that oil isn't expensive at $100, but we need to figure out ways to get the non-working American back to work to afford $100 oil.
"We are getting a larger safety net and we are going to see more corporations willing to take 'risk' that could mean more jobs, we hope.
"Oil continues to find its fair value. There's more money here and we can get back to growth. The more growth only puts more pressure on supply of not only crude, but gasoline and diesel. We could see higher oil prices on the idea of growing demand alone.
"We want more jobs, but that means more demand and obviously higher oil prices. We only have to be careful with oil as money is going to find better investments for money. Flight to quality, but oil will rise."
THOMAS VILLALTA, PORTFOLIO MANAGER, JONES VILLALTA ASSET MANAGEMENT, AUSTIN, TEXAS:
"More bond buying and another upward movement in equities. The market is obviously reacting positively to this news, but it wouldn't surprise me if we saw some of these gains dissipate as the day wears on. I think a lot of this was already built into the price. Long-term, a lot of people have to be looking at this as inflationary."
TODD SCHOENBERGER, MANAGING PRINCIPAL AT THE BLACKBAY GROUP IN NEW YORK:
"This is exactly what Wall Street and, quite frankly, Main Street wanted from the Fed today. The FOMC has been able to buy time with the recent macro data and rally in the markets. However, the risk of recession was much greater had the Fed chosen a reactive approach, rather than proactive. Fortunately, this round of QE is certain to keep the country out of a significant downturn. I would liken this to a 'shock-and-awe' monetary policy move today."
OMER ESINER, CHIEF MARKET STRATEGIST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:
"I was expecting them to keep it more open-ended, but overall, we're getting QE3. The knee-jerk reaction to sell the dollar is the correct one. I do wonder how much lower the dollar can go, though, given that much of this was priced in."
JAMES MEYER, CHIEF INVESTMENT OFFICER AT TOWER BRIDGE ADVISERS IN WEST CONSHOHOCKEN, PENNSYLVANIA:
"The Fed did what was expected. The two questions going forward are: what impact will it have on the economy and how will the Fed back out of this when they reach their objective? I don't think it will have much impact on the economy, and long-term risks associated with the program will have people thinking. That's why we immediately shot up 100 points but now we're pausing a bit. Also, this was pretty well telegraphed so there's not much surprise. Since I don't see this having much impact, I wouldn't expect any rally to be long-lived. It's a mixed picture. In a way, the problem is that the market got what it wanted."
DAVID KEEBLE, GLOBAL HEAD OF INTEREST RATES STRATEGY, CREDIT AGRICOLE CORPORATE & INVESTMENTS, NEW YORK
"I think that the decision to continue selling short dated Treasuries - a continuation of Twist is a good idea, since it reduces the pumping of cash into the economy and softens the criticism of QE programs pumping up gasoline prices.
"Treasuries don't like the shorter-than-expected commitment to keep rates low, only mid-2015. Also the front end of the curve is weakening as it realizes that the Fed is still selling short maturity Treasuries."
JOSEPH TREVISANI, CHIEF MARKET STRATEGIST, WORLDWIDE MARKETS, WOODCLIFF LAKE, NEW JERSEY:
"The Fed has taken the middle road with a modest, defined contribution purchase program and extended rate guidance. The equity markets will not swoon, though they will be disappointed by the size of the program and that it is not open-ended. The dollar will not collapse, which could greatly complicate the U.S. recovery with higher consumer costs, but it will not strengthen either, harming manufacturing. The economic effect, particularly on the labor market, will be marginal. This is a psychological holding action. The Fed cannot cure the economy only Washington can."
MARKET REACTION:
STOCKS: U.S. stock indexes rallied BONDS: U.S. bond prices turned negative and fell sharply FOREX: The dollar added to losses against the yen and euro
