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Welcome to unlimited quantitative easing, or QE Forever.
The U.S. Federal Reserve goosed equities, Treasury yields, gold, silver, oil, platinum, palladium and investor sentiment on Thursday when it announced additional stimulus to spur economic growth.
The central bank said it will continue to buy mortgage-related debt and other securities until the job market shows significant signs of improvement so long as inflation remains tame.
"The market got what it wanted. Stocks immediately shot up," James Meyer, chief investment officer at Tower Bridge Advisers told Reuters.
In fact, the markets got more than expected.
As part of the Fed's new scheme, a marked difference from the first two rounds of QE, it will buy $40 billion of mortgage debt per month. Additionally, the Fed reiterated its stance of keeping interest rates at historic low levels, extending the time frame out until at least the middle of 2015.
"This is definitely a significant shift in FOMC policy," Julia Coronado, chief economist for North America at BNP Paribas in New York and a former Fed economist told Bloomberg News.
Plus, the Fed said it would continue Operation Twist, its action to bring down long-term interest rates.
Collectively, the Fed moves will flood some $85 billion a month into the struggling U.S. economy for the rest of 2012.
The Fed has always set a determined amount of Fed purchases. This time, however, it let America know that easing will endure and no tightening will occur until confidence recovers.
That's why QE3 is a game-changing move for the U.S. economy.
Editors Note: This Fed “game-changer” means huge gains for gold. [ppopup id="70925"]Click here[/ppopup] so you don’t miss the profits.
The Fed's Been Busy
The central bank's aim is to rouse the ailing housing market, encourage hiring and stimulate the overall economy. It's made clear that even more action will come if needed.
"If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed statement said.
In defense of its new open-ended buying spree, the almost unanimous Fed said, "The committee is concerned that without future policy accommodations, economic growth might not be strong enough to generate sustained improvement in labor market conditions."
The only Fed member not on board was Richmond President Jeffrey Lacker who dissented for the sixth consecutive meeting. Lacker opposed additional asset purchases, opposed the FOMC's June decision to extend Operation Twist through the end of the year and has supported an interest rate increase in 2013.
QE Forever Boosts Metals, Oil Prices
The news of QE3, or QE Forever, triggered a broad-based price rally Thursday.
Brent crude oil prices rose to $116.44 per barrel, propelled by the outlook that monetary easing would lead to more economic growth and more demand for oil.
"We could see higher oil prices on the idea of growing demand alone," Carl Larry, president of Oil Outlooks in New York told Reuters.
Gold futures glistened Thursday, also lifted by the announcement of additional stimulus. The yellow metal closed up $38.40, or 2%, to settle the day at $1,772.19 an ounce. Gold prices, up 13% year-to-date, are approaching a high for the year and are just a tad shy of the 2012 peak of $1,790 set Feb. 29.
Silver too had a stellar day soaring 3.7% to $34.50. Platinum and palladium also enjoyed robust gains.
The central bank's QE Forever initiative could be viewed as the launching pad that will eventually push precious metal prices to epic highs over the next several years. While it is unknown how much total money and at what rate the Fed will pump into the economy, what is known it that the more money the Fed prints, the more valuable gold and silver become in dollar terms.
[Editor's Note: This Fed move means investors need to be more prepared than ever for the changing environment facing their investments.
If you feel overwhelmed at that thought, you're not alone.
But there's help out there - help that will make you feel more confident in handling your money and teach you how to profit. Click here to learn how to take control of your financial future.]
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