Bob Kirtley: The Federal Open Market Committee met on Tuesday and Wednesday and decided not to taper Quantitative Easing (QE) not even by a small amount, so the $85 billion monthly bond-buying program remains in place until further notice.
Tapering would have represented a major turning point for the Fed in that it would have signaled the beginning of the end of QE and a reversal of monetary policy which provides by financial stimulus, however, tapering appears to be off the table, at least for the near term. Although the Fed Chairman did say the following:
“We could begin later this year, but even if we do that, the subsequent steps will be dependent on continued progress in the economy, so we are tied to the data. We don’t have a fixed calendar schedule.”
Part of the rationale for not tapering appears to be the rise in long term interest rates which could hamper this fragile economic recovery. This begs the question that if we cannot do it now when, if ever, can we do it? As Ben Bernanke is due to step down in January it may have been considered prudent to leave such changes to the new appointee. If Janet Yellen gets the nod then we could be waiting for some time. Just imagine it; we could be discussing an increase to the Feds balance sheet from the current $3.2 trillion to $5.0 trillion or so in a year or two.
The market in general reacted with a certain amount of volatility with the S&P500 trading up 20 points, closing at 1725 and the DOW up 147 points, closing at 15,676. The US dollar fell sharply on the news as this means the debasement of the dollar will continue.
The precious metals space reacted positively with gold gaining $55.00/oz to close at $1365/oz, silver gained $1.23/oz to close at $22.96/oz and the Gold Bugs Index, the HUI gained 22 points to close at 257. This is a gain of almost 10% for the HUI, achieved in just one trading session bringing with it much relief for both the producers and the long suffering investors.