The Fed Decision: Quantitative Easing Continues!

The FOMC statement added the reinvestment of the proceeds of agency debt and agency mortgage-backed securities into Treasury securities into the quantitative easing program that Fed Chairman Ben Bernanke discussed during his testimony to Congress. At that time, he announced that the Fed would re-invest the proceeds of Treasury securities back into additional Treasury securities.

This was a substantial change from previous Fed statements which indicated a discontinuation of quantitative easing programs. Many anticipated that shrinking the Fed balance sheet would be the next step. This may indicate that the Fed is leaving all options open, including additional monetary easing if necessary because of economic deterioration.

Monetary policy in general will be loose with the rates staying low for an extended period of time. There is no reason to take any chances with any hawkish language given the mixed economic news, uncertainty in the world, and lack of any inflationary pressure.

Until the employment situation improves substantially or there is significant inflationary pressure, I do not expect any monetary tightening. There may be additional quantitative easing if the economy weakens further. If done quickly and aggressively, this could lessen the odds of any substantial decline in the equity markets. The FOMC will most likely utilize speeches by Fed officials to telegraph any significant changes in monetary policy to minimize the chances of confusion and disruption in the market. This has been and will continue to be the pattern for the near future.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices.