“The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.”
That says it all. The Fed has broken new ground, in effect turning Japanese, cutting rates to essentially zero and vowing to ramp up its balance sheet. Dollar bears are having a field day as yields drop further along the curve. 10-year notes yield 2.40%, down 10 bp while 30-year bonds are at 2.88%, down about 3 bp. Yields are below one percent out to the 5 year note where they edge up to 1.40%.
EUR/USD has an express ticket for 1.40 while USD/JPY slides as well. Beware the BOJ.
There were concerns going into the meeting that the Fed had already used all its ammo. Now they’ve used all their bullets, it would appear.
