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Back to the Races, QEternity Lives!

Ron DeLegge

What the market wants is what the market gets. And the Federal Reserve gave both the stock and bond market another shot of steroids that it didn't need.

The Federal Open Markets Committee (FOMC) reaffirmed its commitment to $85 billion in monthly bond purchases or "quantitative easing" (QE) by saying:

"The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate."

The 10-year yield on U.S. Treasury bonds (^TNX - News) fell over 5% to 2.70% while U.S. stocks (SCHB - News) jumped over 1% along with a 3.5% gain in gold (GLD - News).  

Rate sensitive industry sectors like REITs (VNQ - News) and utilities (XLU - News) rallied around 2.5% on the news of continued QE.

The FOMC also decided to keep the target range for the federal funds rate between 0% to 0.25% so long as the nationwide unemployment rate remains above 6.5%.

According to a Bloomberg survey, 65% of economists expected the Fed to scale back on QE.

For now, the asset bubbles created by the Fed's experimental QE will be allowed to grow a little more for a little longer. QEternity lives!

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