08.09.11
Fed Announcement
The Fed announced at 2:15 that it would hold the Federal Funds rate near zero for 2 years.
More significant was what it did NOT announce:
- It did not announce it would keep rolling over its bond portfolio for 2 years.
- It did not announce it would change the composition of its bond portfolio to longer maturity bonds.
- It did not announce it would cut the interest rate (0.25%) it pays on bank reserves.
- It certainly did not announce QE3.
The immediate market reaction was predictably negative – market consensus was for more action by the Fed.
However, that reaction was short-lived, and the market soon took off like a rocket. Very odd.