Here's my summary of the key news overnight in 90 seconds at 9 am, including news the US Federal Reserve has announced it will print US$40 billion a month and use it to buy mortgage bonds in an unlimited way until the US jobs market improves.
The Fed also announced an extension of its promise of near 0% interest rates to mid 2015 from its current promise of 'exceptionally low rates for an extended period' until late 2014.
The announcement is a promise of essentially open-ended money printing until the US economy improves enough to get unemployment substantially than its current level of around 8%.
It also announced it will extend its programme of reinvesting the principal from maturing mortgage bonds until the end of the year. This means the US Federal Reserve will inject a further US$255 billion into the US economy by the end of the year. It will then keep injecting up to another US$480 billion each year until unemployment drops.
This is on top of the US$2.6 trillion it has already printed to buy mortgage bonds in its first two rounds of money printing and bond buying known as Quantitative Easing. See more at Bloomberg on the latest Quantitative Easing measure and see the full Federal Reserve statement.
The idea is that this mortgage bond buying will further push down long term US mortgage rates, encouraging home buyers and businesses to borrow and invest and spend. The problem is interest rates are already at record lows, but borrowers are either too indebted to borrow more, already under water with their mortgages worth more than their houses, or banks are unwilling to lend to those that need the money. Those that can afford to borrow and have good credit ratings have little need to borrow. The verdict on the first two rounds of money printing is mixed, with many saying the first round was more effective than the second.
Hopes and fears this might stimulate more economic activity and inflation saw the gold price rise 2% to US$1,788/oz and oil prices rise around 1%. West Texas Intermediate oil prices rose to US$98 barrel.
The US stock market rallied a further 1.6% to its highest level since 2007. See more here at Bloomberg.
All this appetite for riskier assets and the devaluation of the US dollar saw the New Zealand dollar rise to a 6 month high of 83.2 USc this morning. See more here in BNZ's currencies report on our site.
Reserve Bank Governor Alan Bollard, who is retiring on September 25, again rejected suggestions yesterday the Reserve Bank should intervene to counteract the actions of foreign central banks to devalue their currencies.
He said such intervention was ineffective when attempting to offset bigger forces offshore.
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