Following the two day meeting of the Federal Open Market Committee, it was decided that there won’t be another quantitative easing plan for now that will expand the Fed’s balance sheet; it was decided that the Fed will purchase $400 billion worth of Long Term Securities in exchange of Short Term Securities by the end of June 2012.
The FOMC held a two day meeting and decided to expand its investment in US long term securities: the Fed will further purchase by June 2012, $400 billion of Treasury securities with remaining maturities of six years to 30 years; in exchange it will sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This isn’t a QE3 because there is no expansion of the Fed’s balance.
This action should further decrease the long term securities’ yields and may further pressure traders to invest in the US stock market.
The FOMC also announced it will invest agency mortgage-backed securities and will also maintain its current policy:
“To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.”
The committee will continue to assess the progress of the US economy and might resurface the additional tools the FOMC have if new information will come up.
This news isn’t something earth-shattering and many have expected that the Fed will expand its LT securities purchasing plan, therefore it’s not likely to stir up the financial markets. Currently the US stock markets are traded with mixed trends with the S&P500 index slightly falling by 0.50%, the Dow falling by 0.42% and the NASDAQ inclining by 0.21%.
Current gold price, short term futures (October 2011 delivery) is traded at $1,799.5 per t oz. a $9.61 decrease as of 19:26*.
Euros to US dollar exchange rate is currently traded up at 1.3719 a 0.1259% increase as of 19:31*.
Current Nymex crude oil price, short term futures (October 2011 delivery) is traded down by 1.06% to $86.00 per barrel as of 19:29*.
For further reading:
- FOMC to keep rates low through mid-2013
- Gold & Silver Prices – Daily Outlook September 21
- 5 reasons for QE3 and 3 against – opinion
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.