The Fed delivers what the market was counting on

12/12/2012 1:05 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

We’ll get more detail in Federal Reserve Chairman Ben Bernanke’s 2:15 (New York time) press conference today, but from the Fed’s 12:30 release of the results of today’s meeting of the Open Market Committee, it looks like the markets will get what they hoped the Fed would deliver.

Here’s the important part of the Fed’s statement:

“The Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month.”

In other words, as I speculated yesterday (see my post http://jubakpicks.com/2012/12/11/the-fed-looks-set-to-start-adding-to-its-balance-sheet-again-how-will-the-bank-ever-exit-without-crashing-the-bond-market/  ), the Federal Reserve will keep buying $40 billion in mortgage-backed securities a month, and, when the Fed’s current program of quantitative easing (Operation Twist) ends at the end of the month, the Fed will start a new program of buying Treasuries to the tune of $45 billion a month. In the current Operation Twist, the Fed sold short-term Treasuries from its portfolio and bought longer-term debt. In the new program the Fed will simply buy longer-term Treasuries.

The $45 billion a month buying pace to replace Operation Twist in the Fed’s announcement is pretty much what Wall Street had been expecting and matches the $45 billion a month of buying that the Fed had been conducting under Operation Twist.

The Standard & Poor's 500, which was at 1431 at 12:30, had climbed to 1437 as of 1 p.m. New York time.

 

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