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Bernanke Fires the Monetary Bazooka

September 17, 2012

Investors worldwide anticipated meaningful monetary action to be announced at this week's meeting of the Federal Reserve's Open Market Committee, but not the unveiling of a monetary bazooka.
-Wasif Latif, vice president, equity investments, USAA

 

  • Last week's FOMC meeting unveiled a 'monetary bazooka' in which the Fed committed to continue buying mortgage-backed securities for as long as it takes to drop the unemployment rate. The overall goal is to increase aggregate demand in the economy. Investors are cheering the inflation, but are concerned about the long-term implications of a rise in cost of living.
  • The announcement ignited a worldwide rally in stocks and a selloff in U.S. Treasury bonds, however investors should not lose sight of a worldwide economic slowdown.
  • Soft economic data is affecting corporate profits and economic data released last week continued to implicate a mixed bag as U.S. consumer credit outstanding and credit card borrowing declined, but college and auto loans increased. U.S. initial jobless claims came in higher than expected which appears to have prompted the Fed's actions.

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