Bernanke Steamrolls Three Dissenters and Brings Back the 'Bernanke Put'
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Stocks surged into the close despite a FOMC statement that described the dismal economic conditions and went short of announcing any definitive QE3 measures. The rally left on-air market commentators scratching their heads... to say the least.
The Dow soared 430 points, or 4 percent to close at 11,240. The Nasdaq rose 125 points, or 5.3%. The S&P 500 rose 53 points, or 4.7%.
Reading between the lines of the FOMC statement, it appears the market believes the "Bernanke Put" is back. This is basically described as the market's belief that the Fed Chairman will do whatever it takes to boost asset prices, even if it means some inflation. The put was removed with the expiration of QE2 and a sense the Fed was exiting or out of bullets.
There were four important takeaways from Tuesday's statement:
1. The Fed Funds rate will be "exceptionally low" at least through mid-2013
2. Three FOMC members voted against this action
3. The Fed disclosed that a range of policy tools to promote a stronger economic recovery were discussed.
4. Inflation is seen at or below its target
With an unprecedented number of dissenters voting against Bernanke's move, it could suggest the "mid-2013" language is just the start of what the Chairman has up his sleeve. The inflation hawks want no part of it.
The statement also suggests Bernanke's Jackson Hole speech could prove to be another major event, like it was in 2010. Bernanke's speech is scheduled for August 26th and it could bring more details on what he has in mind to support economic growth.
Does this mean the market is out of the woods? No - far from it. While the Fed can boost asset prices and support the economy it can only do this at the expense of devaluing our currency. So in essence, although assets prices may go up, you are no richer. But at least you're not poorer. Rising gold prices best illustrate this.
The Dow soared 430 points, or 4 percent to close at 11,240. The Nasdaq rose 125 points, or 5.3%. The S&P 500 rose 53 points, or 4.7%.
Reading between the lines of the FOMC statement, it appears the market believes the "Bernanke Put" is back. This is basically described as the market's belief that the Fed Chairman will do whatever it takes to boost asset prices, even if it means some inflation. The put was removed with the expiration of QE2 and a sense the Fed was exiting or out of bullets.
There were four important takeaways from Tuesday's statement:
1. The Fed Funds rate will be "exceptionally low" at least through mid-2013
2. Three FOMC members voted against this action
3. The Fed disclosed that a range of policy tools to promote a stronger economic recovery were discussed.
4. Inflation is seen at or below its target
With an unprecedented number of dissenters voting against Bernanke's move, it could suggest the "mid-2013" language is just the start of what the Chairman has up his sleeve. The inflation hawks want no part of it.
The statement also suggests Bernanke's Jackson Hole speech could prove to be another major event, like it was in 2010. Bernanke's speech is scheduled for August 26th and it could bring more details on what he has in mind to support economic growth.
Does this mean the market is out of the woods? No - far from it. While the Fed can boost asset prices and support the economy it can only do this at the expense of devaluing our currency. So in essence, although assets prices may go up, you are no richer. But at least you're not poorer. Rising gold prices best illustrate this.
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