Investors like the Federal Reserve’s latest round of stimulus measures. The S&P 500 was up more than 0.8 per cent in afternoon trading on Thursday – less than an hour after the Fed said it would extend its commitment to keeping its key interest rate exceptionally low and buy $40-billion (U.S.) worth of mortgage debt every month.
But will the stimulus measures work their magic on the U.S. economy and bring down unemployment? Here is what several economists are saying about the impact on the economy and markets.
Paul Ashworth, Capital Economics: “Overall, the Fed has done all the markets were asking for. The problem is that we doubt it will be enough to get the economy on the right track. It’s only a matter of time before speculation begins as to when the Fed will raise its purchases from $40bn a month.”
Paul-André Pinsonnault and Krishen Rangasamy, National Bank Financial: “Today’s twin measures and the ongoing Operation Twist, should help lower long yields as expected by the Fed, and perhaps extend the current ‘risk on’ environment. That said, the impacts on near term U.S. growth will be minimal at best, and won’t offset the negative impacts from the upcoming fiscal cliff.”
Sherry Cooper, BMO Nesbitt Burns: “My view is that this is a courageous move by the Fed and I applaud it. Rather than politicizing the Fed, it proves they are independent and willing to do what they believe is right regardless of the political fallout. No doubt, they will come under tremendous criticism from politicians and others; but Bernanke has already shown himself impervious to these outside pressures and willing to pursue this path.”
Avery Shenfeld, CIBC World Markets: “Given how much was priced-in for this decision in recent days, a lot of this is priced in, but to the extent that the market believes this will actually spur growth, it’s a near term plus for risk assets and a negative for Canadian government bonds (a safe haven).”