Fed Chairman Ben Bernanke announced in a press conference this afternoon that the U.S. Federal Reserve will continue quantitative easing, the controversial bond buying program, for now. Chairman Bernanke expressed concern over rising borrowing costs and their effect on the economy, saying that the situation calls for continued quantitative easing.
Analysts on and off Wall Street were surprised, to put it mildly. Markets responded very well to news of continued easy-money policy. The mainstream consensus was that the Fed would begin to taper off its $85 billion monthly bond purchases by around $10 or $15 billion each month. Current pricing just didn't take continued bond buying into account, and the bullish reaction was immediate, intense, and widespread.
The Dow Jones Industrial Average jumped 140 points in minutes to hit 15,670, and the S&P 500 climbed 20.1 points to 1,724 over the same timeframe. The Nasdaq composite jumped more than 36 points to top 3,780. There were rapid, robust advances across all asset classes. Gold climbed 3%, and oil hit $108 per barrel.
Stocks have been creeping upward over the past few weeks on more optimistic economic data, with the idea that the Fed would slowly and incrementally cease its controversial bond buying program. Fears that the United States and its allies would attack Syria, too, all contributed to the modest rally. But the news that quantitative easing would continue for the time being turned a gradual upswing into a no-holds-barred rally.
Bernanke also said the Fed intends to keep the short-term interest rate at close to 0%, guaranteeing virtually free money for the foreseeable future - or until the official unemployment rate inches closer to 6.5%.