Friday, September 14, 2012

QE3 Is Here

To no one's surprise, Federal Reserve chairman Ben Bernanke announced a third round of quantitative easing yesterday. The Fed's plan isn't as broad as earlier rounds of easing have been - Bernanke says they expect to buy $40 billion worth of mortgage bonds every month for as long as it seems necessary to do so. Earlier rounds included buying as much as $600 billion worth of Treasury bonds.

While it's always dangerous to read too much into single-day swings, it appears that the market liked this move. The Dow Jones Industrial Average and the S&P 500 index both gained more than one and a half percent on the day. The S&P had its highest close since December 2007.

And of course investors should get excited, if the effects are anything like those of the earlier rounds of quantitative easing. During the first QE, from March 2009 to March 2010, the S&P rose by nearly 73 percent. And during the second round, from the end of November 2010 until the beginning of June 2011, the S&P 500 rose by 11 percent.



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