"We have tried very, very hard, and I think we've been successful...to be nonpartisan and apolitical," Bernanke said at a news conference Thursday after the official Fed announcement of QE3. "We make our decisions based entirely on the state of the economy....So we just don't take those [political] factors into account. And we think that's the best way to maintain our independence and maintain the trust of the public."
In case you missed it, the Fed's third round of quantitative easing entails the purchase of $40 billion of mortgage-backed securities each month until unemployment shows a marked improvement.
In other words, for as long as it takes.
But with QE3 arriving less than 60 days before a bitterly contested presidential election, the Fed move was bound to get caught up in the campaign.
Both sides reacted immediately, with Republicans criticizing QE3 as unnecessary while Democrats applauded.
A few Republicans even accused Bernanke of timing QE3 intentionally to boost President Obama's re-election chances.
For the record, Bernanke is himself a Republican, appointed chairman of the Federal Reserve by President George W. Bush in 2006 and re-appointed by President Obama in 2010.
But with the Fed becoming a GOP bogeyman in recent years (thanks largely to the attacks from Rep. Ron Paul, R-TX), QE3 was bound to become weaponized in this year's increasingly acrimonious campaign.
Don't be fooled when each political party throws out the following QE3-fueled lines to get your vote.
- The QE3 rally climbs higher - After the Federal Reserve announced its latest stimulus measure, QE Forever, as some are calling it, the markets soared, all reaching multi-year highs. Commodities and financials in particular did well. Oil is approaching $100 a barrel, gold is nearing $1,800/oz., Bank of America (NYSE: BAC) has gained over 10% this week and JPMorgan Chase & Co. (NSYE: JPM) has now made up all its losses since the "London Whale Trade." The dollar as expected took a beating, falling to its lowest level since May, and the euro is now over $1.31. Yet, the question is whether QE3 will be a short-term or long-term rally. "It was a strong signal from the Fed and a very welcome move but we'll have to wait and see if this is more than a one or two-day wonder for the market," Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London told Bloomberg News. "All of this central-bank policy removes a degree of uncertainty that has been plaguing markets."
- Retail sales rise but outlook grim - The Commerce Department reported that retail sales increased 0.9% in August from a month earlier following a 0.6% gain in July. This was spurred by better auto and gasoline sales, but outside of those categories there was little good news. Excluding those two items, retail sales inched up 0.1% with weak electronic, clothing, and appliance sales. Core retail sales, which exclude automobiles, gasoline, or building materials fell 0.1% and is more closely related to consumer spending within the U.S gross domestic product calculation.
Federal Reserve Chairman Ben Bernanke announced that the Fed will launch a new bond-buying program to purchase $40 billion in mortgage-backed securities each month. Interest rates will be kept at 0% through mid-2015, six months longer than originally planned.
Together with the rest of the remainder of the Operation Twist program, the Fed will be buying $85 billion in bonds for the rest of 2012. The new bond purchases will start tomorrow (Friday).
Bernanke and the FOMC decided in an 11-1 vote to use unconventional monetary policies once again to bring down unemployment that has been stuck above 8% for 43 months and to boost an economy that grew at a lethargic 1.7% rate in the second quarter.
But this new program, compared to previous rounds of easing, has a new twist.
QE3 is an open-ended program to buy bonds until the economy improves. The Fed said in its statement earlier today that if the labor market does not improve it will continue purchases and undertake additional measures if needed.
Now that QE3 is here, will this new measure actually boost the economy and spur job growth?
Catherine Mann, a Brandeis professor and former Federal Reserve economist doesn't think so.
"The Fed continues to want the economy to grow faster and specifically, to grow more jobs, but the ability of QE to do that is extraordinarily limited," she told CNN. "We know that QE reduced interest rates, but we also know that has not led to more construction, more mortgages, more business investment, or more lending. Since it hasn't done any of that, it probably hasn't created jobs either."
Today's Fed meeting will likely end with more of the same information we've been hearing for months from U.S. Federal Reserve Chairman Ben Bernanke. It's been a year and a half since Bernanke first announced that short-term interest rates would remain near zero "for an extended period." That language will likely stay the same tomorrow, and the policy timelines could be drawn out even longer.
There is also no doubt that QE3 or some other meaningful economic stimulus measure is on its way.
Maury Harris, an analyst with UBS, declared in a recent note to clients that, "We now anticipate an announcement of another round of quantitative easing at the FOMC meeting on September 13th. We expect the easing will take the form of a six-month program of at least $500 billion, primarily focused on Treasuries."
Harris also added that, "We also expect the FOMC extends their rate guidance into 2015."
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But there's another huge event scheduled this week, one that could provide a tool other than printing money for boosting U.S. gross domestic product (GDP).
Believe it or not, analysts at JPMorgan Chase & Co. (NSYE: JPM) estimate that the Apple iPhone 5, expected to be unveiled tomorrow (Wednesday) afternoon and on sale by the end of this month, will raise GDP by 0.5% in the fourth quarter of this year.
Money Morning Chief Investment Strategist Keith Fitz-Gerald appeared on Fox Business' "Varney & Co." program Tuesday morning to discuss the possibility of this iPhone effect and what it implies.
Bernanke repeated the Fed's recent stance that current economic conditions are still "obviously far from satisfactory" and more help would be coming "as needed."
Interest rates remain near zero, but the Fed maintains that it still has plenty of ammo in its arsenal to boost the economy. The Fed apparently doesn't want to do too little now while the economy faces high unemployment and some inflationary pressure.
On the other hand, doing too much could - if Fed policies interfere with Congress' ability to act down the road -lead to a backlash against the Fed's power.
And the farther the Fed goes with monetary stimulus measures, the deeper that problem becomes.
That's why Harvard economist Martin Feldstein is afraid of QE3. He thinks adding to the billions of dollars already committed to quantitative easing programs will hurt us more than it helps.
Much of the speech, delivered at the Fed's annual retreat at Jackson Hole, WY, made a case for the effectiveness of the central bank's easy-money policies since 2007, including "nontraditional" actions such as QE1, QE2, and Operation Twist.
The Fed chairman said that the stimulus purchases "have provided meaningful support to the economic recovery while mitigating deflationary risks."
And in a hint to expect more of the same -- namely, QE3 -- Bernanke said that the costs of such policies, "appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant."
Bernanke also voiced concern over the sluggish economic recovery, and in particular the "painfully slow" improvement of the U.S. unemployment rate, which has changed little in 2012.
That's the sort of bad economic news that has pushed the Fed to take action in the past.
The central bank decided to leave rates unchanged, reiterated it would leave rates low through at least 2014 (not extending them to 2015 as expected) and did not announce a third round of quantitative easing.
The Fed chiefs did, however, voice that should conditions warrant, they are ready to step in and take aggressive steps to bolster the U.S. economy.
PIMCO's leader Bill Gross told CNBC that "a changing in policy landscape can be expected in a month or so."
Rep. Kevin Brady, R-TX, asked Bernanke to "look the market in the eye" and tell investors what to expect from the Fed. Bernanke refused to commit to a policy, but said the Fed could deliver an answer in the next couple of weeks.
Bernanke's comments indicated that the Fed would continue to monitor the U.S. economy as needed, but that no action like another round of quantitative easing was immediately necessary.
"The Committee reviews the size and composition of its securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery," Bernanke said in prepared remarks.
His non-committal comments contrasted those made a day before by other Fed members, including Vice Chair Janet Yellen and San Francisco Fed President John Williams, who indicated that more stimulus by the central bank is necessary to boost the U.S. economy.
"It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest," Yellen said Wednesday in a speech in Boston.
Also on Wednesday Federal Reserve Bank of Atlanta President Dennis Lockhart said another round of Operation Twist could be considered.
"There is capacity to do more," Lockhart in a speech in Florida. "It is certainly an option. I'm not going to speculate on what the FOMC will do."
Bernanke's remarks followed the market's best daily performance of 2012. The Dow surged 287 points on Wednesday, closing at 12,414.79. Despite the mixed Fed messages, markets started off well Thursday, with each index rising more than 1% after The Peoples Bank of China announced it would cut its deposit and lending rates 0.25%, marking its first cut since 2008.