With just sixteen words, Ben Bernanke lowered interest rates, sunk the dollar, and boosted the stock market. And, he also got CNBC’s Rick Santelli’s heart to race a bit faster.
With just sixteen words, Federal Reserve Bank Chairman Ben Bernanke lowered interest rates, sunk the dollar, and boosted the stock market.
And, he also got CNBC’s Rick Santelli’s heart to race a bit faster.
“Highly accommodative monetary policy for the foreseeable future is what is needed for the US economy,” said Bernanke.
Translation: “We dumped a whole lot of dollars into the economy for three years hoping it’ll get better. Guess what? It still stinks so we’re going to keep doing the same things and hope we get better results.”
We all know what that’s a definition of.
Bernanke’s statement is being interpreted as the Fed will won’t stop its $85 billion per month bond buying program known as QE2 (quantitative easing). Buying government and mortgage raises bond prices thereby lowering interest rates.
When traders began contemplating a Fed tapering of QE2 after Bernanke hinted such may happen several weeks ago, the market saw a selloff of bonds, leading to a jump in interest rates.
Higher interest rates lead investors to invest buy US dollars to get a higher return. From the middle of June until July 9, the US Dollar Index rallied nearly 5%.
However, in the last two days as investors now think the Fed’s heavy bond-buying will continue, interest rates have dropped and so has the dollar. The US Dollar Index has fallen 1% in the past 12 hours. It is also having its worse two-day fall since the start of the year.
On this morning’s “Squawk on The Street” on CNBC, Rick Santelli said:
“You know, the big complaint from many of the fiscal conservatives has been ‘Oh, you guys have been crazy about inflation!’ No, no, no, no. The real argument was that these programs create a boatload of foreign exchange volatility. To wit, look at the chart: 84.70, 82.40 Dollar Index. Gee, I wonder why gold is up $36. And if you open that chart up to May 1st, looks like a commodities chart, not a currency, not a reserve currency.”
For the sake of easy online reading, the quote above was not transcribed in all-caps.
So, where’s the dollar going next? We ask CNBC contributors Abigail Doolittle, Technical Strategist at The Seaport Group, and Steve Cortes, Founder of Veracruz TJM, to look at the charts and fundamentals of the US greenback.
To watch Santelli at full volume and to hear Doolittle and Cortes analyze the dollar, watch the video above.