September 21, 2011 – NEW YORK (Reuters) - The Federal Reserve on Wednesday dialed up its aid to the beleaguered U.S. economy, launching an effort to put more downward pressure on long-term interest rates over time and help the battered housing sector.
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MARK LAMKIN, CHIEF MARKET STRATEGIST, LAMKIN WEALTH MANAGEMENT, LOUISVILLE, KENTUCKY:
"As you look deeper, they added the word 'significant' in their assessment of the downside risk to the economy. They could be setting up for 'QE3.' They are remaining accommodating, but they can't use all the arrows in the quiver right now.
"There were three dissenting voters again so that doesn't give us a clear path. They might do more, but it wouldn't create 4 percent GDP even if they do more.
"The Fed is in reaction mode not only to the economy, but also with politics. The Fed will keep an eye on the super committee on debt reduction in Congress.
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"With stocks, it's buy the rumor and sell the news. Some traders were hoping for a bolder move from the Fed."
ROBERT TIPP, CHIEF INVESTMENT STRATEGIST, PRUDENTIAL FIXED INCOME, NEWARK, NEW JERSEY:
"The Fed had a very difficult path to navigate, but if the ultimate objective was to bring down long-term rates, the initial reaction from the market was positive.
"The Fed had a difficult path because any aggressive steps to stimulate growth through these extreme monetary techniques could raise concerns about inflation. So the fact that even after the rally that preceded the announcement, rates have moved even lower, particularly 30-year rates, suggests the Fed has successfully kept that balance between monetary accommodation that is aggressive enough to help the economy, but not enough to stoke a backlash of inflation fears."
JOSEPH TREVISANI, CHIEF MARKET ANALYST, FX SOLUTIONS, SADDLE RIVER, NEW JERSEY:
"Medium and short run this policy will have little impact on the economy and even less impact on the dollar. This is what was expected."
JOSHUA BROWN, VICE PRESIDENT OF INVESTMENTS, FUSION ANALYTICS, NEW YORK:
"It looks like its QE 2.5, they'll do a little bit of a rejiggering. This is a way they can put even more pressure on the longer rates. It doesn't look like it will mean or contribute much to the real issue, which is jobs. This is a bigger story for journalists. A knee-jerk reaction down then up. They seem a little more concerned with downside risk than the previous meeting."
JOSEPH ARSENIO, MANAGING DIRECTOR, ARSENIO CAPITAL MANAGEMENT, LARKSPUR, CALIFORNIA:
"The market is deteriorating because the Fed didn't reduce yields on reserves. There is no additional impetus for banks to lend. It wasn't sufficiently stimulating. The stock market is reacting to that and since that has been fairly closely coordinated with oil markets, we're seeing declines there as well."
STEPHEN MASSOCCA, MANAGING DIRECTOR, WEDBUSH MORGAN, SAN FRANCISCO:
"I don't see anything of a big surprise here. The economic outlook -- everyone has got a focus on this economic outlook comment and that is what has driven the market down. In terms of the actual substantive action, the 10-year (yield) is moving down because obviously you have now created $400 billion of buying here."
CARL LARRY, DIRECTOR OF ENERGY DERIVATIVES AND RESEARCH, BLUE OCEAN BROKERAGE, NEW YORK:
"They (the Fed) is putting on the "twist" which should be weaker dollar near term and stronger long term.
"The one thing that weighs on any decision here is that we are still seeing dissenters in the Fed. And that doesn't bode well for a stable recovery.
"That is probably going to make crude weaker here until people get a better picture of what holds the Fed together.
MOHAMED EL-ERIAN, CO-CHIEF INVESTMENT OFFICER, PIMCO:
"The Fed has revised downwards its economic outlook and also pointed to significant downside risk. The outcome points to an even more divided FOMC."
BRIAN DOLAN, CHIEF STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:
"This is pretty much what the market was expecting, though the size is a bit more than people expected. I thought the dollar would weaken because it was as expected, but that is not happening at the moment. ... I think we might see some dollar profit-taking at some point. Europe's still a mess and the global economy right now seems to be stagnating. And this seems to be the Fed's final shot."
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, 4CAST, INC., NEW YORK:
"The interest on excess reserves was a close call but they probably decided not to do it because it would cause more problems.
"This is good for Treasuries, obviously. Whether this will create economic stimulus remains to be seen. It might have kind of limited economic impact."