Fed Pledges Open-Ended Bond Buying; Stocks, Gold Surge 2%

Bikram Pandey
13 Sep, 2012
New York City

The Federal Reserve opened a new round of unconventional measures to tackle the chronic high unemployment rate. The latest round of mortgage bond buying follows $2.3 trillion of bond purchase in the last two measures since November 2008. Financial markets gained. Gold added 2% and silver jumped 4%.

[R]4:35 PM New York – The Federal Reserve opened a new round of unconventional measures to tackle the chronic high unemployment rate. The latest round of mortgage bond buying follows $2.3 trillion of bond purchase in the last two measures since November 2008. Financial markets gained. Gold added 2% and silver jumped 4%.[/R]

The Federal Reserve embarked on the third round of stimulus action to revive the economic growth and lower the chronic high unemployment rate.

The latest measures are directed at the purchase of mortgage bonds and the central bank plans to purchase $40 billion of bonds every month for as long as necessary till the unemployment rate come down from the present rate of above 8%.

The Fed’s policy committee also held interest rate near zero and plans to keep the short term rates at this level six months longer than previously targeted through mid-2015.

The Fed today also lowered its outlook on the economic growth this year between 1.7% and 2%, down from the previous estimate of growth of 1.9% to 2.4%. However, the unemployment rate is expected to stay above 8% this year and is estimated to fall to as low as 7.6% next year and 6.7% in 2014.

At a press conference, Ben Bernanke clarified that one of the goals in providing economic stimulus is to lift stock prices because gains in financial markets typically lead investors and businesses to increase spending and investment.

The Fed’s first bond buying carried out at the height of the financial crisis between November 2008 and March 2010 led to the purchase of $1.7 trillion. This was followed by the second short term bond purchase program between November 2010 and June 2011 totaling $600 billion.

U.S. indexes slid after weekly jobless claims rose more than estimated. U.S. producer prices and foreclosure filings climbed in August. FirstMerit agreed to acquire Citizens Republic Bancorp for $912 million.

K12 Inc fourth quarter swung to profit. Perrigo to acquire privately held Sergeant''s Pet Care Products Inc. for $285 million and the specialty retailer Pier 1 second quarter net surged 58%. Pall Corporation net slumped 12% to $86.2 million.

Italy sold €6.5 billion of bonds today and the Swiss National Bank left exchange and interest rate unchanged. Greek jobless rate rose in the second quarter. German growth outlook lowered for this year and next.

Stocks in Tokyo closed higher and the yen firmed for the third day in a row. Shipping companies led the market gainers on the prospect of higher container rates. Murata Manufacturing, Meiko, Sumida and TDK surged after Apple released thinner and faster mobile phone.

Australian stocks declined in the final hour of trading after the third largest miner Fortescue Metals sought help of banks in restructuring its debts. Mining sector employment declined for the first time in three months to August by 4,600.

Commodities, Bonds and Currencies

The yield on 10-year bond decreased to 1.75% and on 30-year bond closed up to 2.94%.

The U.S. dollar inched lower to $1.2989 to a euro and decreased against the Japanese yen to 77.49 yen.

Immediate delivery futures of Texas crude oil increased $1.14 to $98.14 a barrel and Brent crude added 49 cents to $115.80, futures of natural gas decreased 0.03 cents to $3.03 per mbtu and gasoline price edged down 3.6 cents to 296.53 cents a gallon.

In metals trading, copper increased 4.75 cents to $3.74 per pound, gold soared 1.96% or $34 to $1,767.70 per ounce and silver jumped 4.2% to $34.68.