I cannot say: "I knew this would happen" but my gut feeling was that all the news about Fed tapering their bond-buying was OVER-sensationalised by the News media. And I am glad this happened because i get to buy into some stocks at a discount. Good for investors and speculators alike.
Feeling lazy to type today but this is quite big news and should share with everyone so just copied and pasted the report from my broker. Its below for your reading pleasure:
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Fed Refrains From Taper as It Seeks
Signs of Sustained Growth
2013-09-18 21:38:44.617 GMT
By Joshua Zumbrun and Jeff Kearns
Sept. 18 (Bloomberg) -- The
Federal Reserve unexpectedly refrained from reducing the $85 billion pace
of monthly bond buying, saying it needs more evidence of lasting improvement
in the economy and warning that an increase in interest rates threatened
to curb the expansion.
“Conditions in the job market today are
still far from what all of us would like to see,” Chairman Ben S. Bernanke
said at a press conference today in Washington after a two-day meeting
of the Federal Open Market Committee. “The committee has concern that
rapid tightening of financial conditions in recent months would have the
effect of slowing growth.”
U.S. stocks rose, sending the
Standard & Poor’s 500 Index to a record, while Treasuries and gold
rallied as Bernanke stressed that the pace of bond buying would be dependent
on economic data, and the Fed has no predetermined schedule for tapering
the purchases that have pushed its balance sheet to $3.66 trillion.
“There is no fixed calendar
schedule, I really have to emphasize that,”Bernanke said. “If the
data confirm our basic outlook” for growth and the labor market, “then
we could begin later this year.”
The S&P 500 climbed 1.2 percent to 1,725.48
at 4:02 p.m. in New York. The yield on the 10-Year Treasury note dropped
15 basis points to 2.70 percent. Gold for immediate delivery jumped $55.61
to $1,366.25 an ounce. Oil rose more than 2.5 percent.
“It looks like the Fed has done a major
reset in terms of expectations on what they need to see before they start
to taper,” said Chris Rupkey, the chief financial economist for Bank of
Tokyo-Mitsubishi UFJ Ltd. in New York.
Rate Outlook
The central bank, in a statement,
left unchanged its outlook that its target interest rate will remain near
zero “at least as long as” unemployment exceeds 6.5 percent, so long
as the outlook for inflation is no higher than 2.5 percent.
Bernanke added in his press
conference that the first interest-rate increase may not come until the
jobless rate is “considerably below” 6.5 percent.
“Even after asset purchases are
wound down,” Bernanke said, the “Fed’s rate guidance and its ongoing
holdings of securities will ensure that monetary policy remains highly
accommodative, consistent with an aggressive pursuit of our mandated objectives
of maximum employment and price stability.”
Bernanke said the Fed could also specify
that it would not tighten if inflation was too low. “An inflation floor
is certainly something that could be a sensible modification or addition
to the guidance,” he said.
Forecasts Reduced
Fed officials today reduced their
forecasts for economic growth this year and next. They forecast U.S. gross
domestic product to increase 2 percent to 2.3 percent this year, down from
a June projection of 2.3 percent to 2.6 percent growth.
“They feel the risks are too great to taper
now, and the economy is not growing as fast as they had hoped,” said John
Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.
“They are going to take a few more months and maybe start in December.”
Economists had forecast the FOMC would dial
down monthly Treasury purchases by $5 billion, to $40 billion, while maintaining
its buying of mortgage-backed securities at $40 billion, according to a
Bloomberg News survey.
Fed officials were spooked by an increase
in bond yields that followed Bernanke’s comments in May that the Fed may
step down the pace of purchases in the “next few meetings,” said Scott
Brown, chief economist for Raymond James & Associates Inc.
in St. Petersburg, Florida.
Treasury Yields
The yield on the 10-year Treasury note climbed
almost 1 percentage point through yesterday since Bernanke’s May 22 comments,
with yields on Sept. 6 exceeding 3 percent on an intraday basis for the
first time since July 2011. That compares with 1.61 percent on May 1, and
a record-low 1.38 percent in July 2012.
“They were really surprised back in May
and June by the market’s response to the initial talk of tapering,” Brown
said.
“The Fed’s view was that it’s the amount
of asset purchases, not the monthly pace that matters. In that case, it
doesn’t matter whether they start tapering in September or December, but
the markets decided it does, so it does matter.”
“We’re seeing the reaction that bond yields
are coming down, and that’s got to be helpful for their outlook.”
Kansas City Fed President Esther George dissented
for the sixth meeting in a row, repeating that the policy risks creating
financial imbalances.
Higher interest rates have started to take
a toll on housing, one of the drivers of the expansion. A Commerce Department
report today showed that builders began work on fewer U.S. homes in August
than projected by economists.
Housing Starts
Housing starts rose 0.9 percent
to a 891,000 annual rate, following the prior month’s 883,000 pace that
was weaker than previously estimated. The median estimate of 83 economists
surveyed by Bloomberg called for 917,000. Permits, a proxy for future projects,
dropped more than forecast.
The average interest rate on a 30-year fixed
home loan was 4.57 percent last week, compared with a record-low 3.31 percent
in November 2012, according to Freddie Mac. The rate soared 35 percent
in 10 weeks ended July 11, the most ever for a comparable period, the data
show.
Bernanke, who is nearing the end of his second
term as chairman, has orchestrated the most aggressive easing in the Fed’s
100-year history, pumping up the balance sheet from $869 billion in August
2007 and holding the main interest rate close to zero since December 2008.
Leading Candidate
Vice Chairman Janet Yellen, a supporter of
Bernanke’s policies, is the top candidate to succeed him after former
Treasury Secretary Lawrence Summers withdrew from contention, according
to people familiar with the process.
The Fed’s asset purchases have fueled gains
in asset prices. Counting today’s increase, the S&P 500 Index has
climbed 23 percent since Aug. 31, 2012, when Bernanke made the case for
further monetary easing at the central bank’s annual forum in Jackson
Hole, Wyoming.
Officials have also credited the program,
which began last September, with reducing the unemployment rate, which
is the lowest since December 2008. Officials have said that they would
maintain bond purchases until the labor market has “improved substantially.”
At the same time, recent data on payrolls,
housing and retail sales have lagged behind economists’ forecasts.
Jobless Rate
U.S. companies created 169,000
jobs last month, fewer than economists projected, and increases in the
prior two months were revised down. The unemployment rate fell as workers
left the labor force. August and July were the weakest back-to-back months
for payroll gains in a year.
Employment growth has nevertheless
improved since the bond purchases began. The U.S. has added an average
of 160,000 jobs over the past six months, compared with 97,000 originally
reported for the half-year before the Fed decided to start the third round
of purchases a year ago.
Faster employment gains may be
needed to spur the consumer spending that accounts for 70 percent of the
economy. Retail sales last month rose less than forecast, with purchases
climbing 0.2 percent, the smallest gain in four months, the Commerce Department
reported last week.
Bright Spots
Homebuilding and manufacturing remain bright
spots for the economy. Companies such as Hovnanian Enterprises Inc. have
said the recent rise in mortgage rates will temporarily restrain the housing
recovery rather than end it.
Homebuilder confidence held this month at
the highest level in almost eight years, even as mortgage rates rose. The
National Association of Home Builders/Wells Fargo confidence index registered
58 this month, matching August’s revised reading as the strongest since
November 2005.
Such optimism has found fuel from a recovery
in home prices that pushed up the S&P/Case-Shiller index of values
in 20 cities by 12.1 percent in June from a year earlier.
Factories turned out more cars, appliances
and home furnishings in August, propelling the biggest increase in U.S.
industrial production in six months. Output at factories, mines and utilities
rose 0.4 percent after no change the prior month, the Fed reported this
week.
Auto Sales
Cars and light trucks sold last month at
the fastest annualized rate since 2007, according to researcher Autodata
Corp. Sales at General Motors Co., Ford Motor Co., Toyota Motor Corp. and
Honda Motor Co. all exceeded analysts’ estimates.
Texas Instruments Inc., the largest maker
of analog chips, is among companies with a brighter outlook as global markets
stabilize.
“Orders continue to be quite solid” this
quarter, Chief Financial Officer Kevin March said at a Sept. 11 conference.
“We continue to see strength in three of
the four regions of the world,” with Asia, Japan, and the Americas expanding,
he said.
For Related News and Information:
Fed Seen Paring QE to $75 Billion Pace This
Month, Survey Shows NSN MSPWYG0D9L35 <GO> Fed Officials Rebuff Coordination
Calls as QE Taper Looms NSN MS4UHC6TTDS0 <GO> Less Tapering Becomes
Tightening Credit No Matter What Fed Says NSN MT8N176K50YJ <GO> Fed
balance sheet graph: FARBAST INDEX GP W <GO> U.S. economic forecasts:
ECFC US <GO> Treasury curves: GC I25 TODAY 1Y 2Y 5Y 7Y <GO>
Global economy watch: GEW <GO> World economic statistics: ECST <GO>
--With assistance from Steve Matthews in
Atlanta and Caroline Salas Gage, Aki Ito and Craig Torres in Washington.
Editors:
James Tyson, Christopher Wellisz, Kevin Costelloe
To contact the reporters on this story:
Joshua Zumbrun in Washington at +1-202-624-1984
or jzumbrun@bloomberg.net; Jeff Kearns in Washington at +1-202-624-1806
or jkearns3@bloomberg.net
To contact the editor responsible for this
story:
Chris Wellisz at +1-202-624-1862 or
cwellisz@bloomberg.net
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