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Bernanke Does the Expected and Then Some

Written by: Richard Suttmeier 09/14/12 - 8:25 AM EDT
NEW YORK (TheStreet) -- The Federal Reserve expanded its money madness on Thursday. The Federal Reserve Open Market Trading Desk has been instructed to purchase agency mortgage-backed securities at a pace of $40 billion a month, with a prorated amount of $23 billion being bought during the remainder of September.

This quantitative easing program, or QE3, is open-ended and without a ceiling to the total expansion of the Fed's balance sheet. Operation Twist, where the Federal Reserve extends the maturities of its holdings will continue until the end of the year at $35 billion per month. The mortgage-backed securities program and Twist thus total $85 billion per month through December.

The Federal Reserve will also continue reinvesting the principal amounts of maturing issues of agency debt and mortgage-backed securities into new agency mortgage-backed securities. Finally the zero to 0.25% federal funds rate will be extended until at least mid-2015.

The expert consensus calls I discussed Thursday in my post What to Focus On After the Fed Statement included the open-ended commitment and the focus on purchasing mortgage-backed securities. The FOMC expects its new policy actions to "put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

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In my opinion the FOMC just added another ridiculous program that helps Wall Street while ignoring Main Street.

The initial reaction in the U.S. capital markets was back and forth market gyrations until the moves I expected occurred, except for the U.S. Treasury 10-year yield. The purpose of this bold monetary policy move was to bring down longer-term US Treasury yields, but instead the yield on the 10-Year US Treasury note tested its 200-day simple moving average at 1.832% with the yield on the 30-Year US Treasury bond above 3.00% this morning.

Comex gold extended its rally to $1,780.2 the Troy ounce this morning, which is between my monthly risky level now a pivot at $1753.7 and my quarterly risky level at $1805.8. Nymex crude oil cleared its 200-day simple moving average at $96.61 and traded above the $100 per barrel mark this morning.

The euro vs. the dollar closed above my semiannual pivot at 1.2917. The new Fed policy has given commodities traders a renewed license to speculate, while Main Street faces higher prices at the gas pump.