FED Leaves QE2 In Place. Economy Looks Better. Bullish. Apple Comment

[ 0 ] January 26, 2011 |

Many were waiting today for the FED announcement at 2:15pm regarding interest rates and especially would QE2 continue with the economy showing definite signs of recovery. As you read below, QE2 is alive and well and continuing as planned, which further attests to our bullish view on the market for 2011. With the economy doing better and QE2 continuing, its like having your cake and eating it too. We would use any pullbacks to continue to add quality shares to your portfolio. Apple, our favorite stock, is trading at $345.00, up from $326.80 a few days ago when Lange Financial Services reiterated their strong buy for AAPL shares on this site. They remain very positive on the shares and still look for $500.00 per share on Apple in the future.

W&BR

Fed Pushes On With $600 Billion Stimulus, Says Growth Too Slow
2011-01-26 19:16:55.383 GMT

By Scott Lanman
Jan. 26 (Bloomberg) — Federal Reserve policy makers
maintained plans to buy $600 billion of Treasuries through June,
indicating that signs of an accelerating recovery don’t warrant
paring back efforts to reduce high unemployment.
The expansion is “continuing, though at a rate that has
been insufficient to bring about a significant improvement in
labor market conditions,” the Federal Open Market Committee
said today in its statement after a two-day meeting in
Washington. Officials were unanimous for the first time since
December 2009.
Chairman Ben S. Bernanke is seeking to acknowledge signs of
a strengthening economy while holding to unorthodox measures
that have prompted a backlash from Republican leaders in
Congress. Gains in manufacturing and household spending haven’t
been matched by a decline in the jobless rate, which has been
stuck at 9.4 percent or more since the recession ended in 2009.
Inflation is too low, and unemployment too high, to be
consistent in the long run with policy makers’ congressional
mandates for stable prices and full employment, the Fed said,
repeating that progress toward its objectives has been
“disappointingly slow.”
The Fed left its benchmark interest rate in a range of zero
to 0.25 percent, where it’s been since December 2008, and
retained a pledge in place since March 2009 to keep it
“exceptionally low” for an “extended period.”
“Although commodity prices have risen, longer-term
inflation expectations have remained stable, and measures of
underlying inflation have been trending downward,” the central
bank said.

Inflation Gauge

The inflation gauge watched by the Fed, which excludes food
and energy costs, showed a 0.8 percent increase in the 12 months
through November. Central bank officials prefer that the
inflation rate range from 1.6 percent to 2 percent.
While prices of food, metals and petroleum-related products
have risen, companies are having difficulty passing along those
costs to customers “because of competitive pressures,” the Fed
said in its Jan. 12 Beige Book regional business survey.
Philadelphia Fed President Charles Plosser and Richard
Fisher, the Dallas Fed chief, supported maintaining the stimulus
after indicating they opposed introducing it in November. They
were among four regional Fed presidents who rotated into voting
slots for the year at this week’s meeting, replacing officials
including the Kansas City Fed’s Thomas Hoenig, who favored
tighter policy as the lone dissenter in all eight decisions last
year.

Mortgage Debt

The Fed has acquired $261 billion of Treasuries since it
started carrying out the second round of so-called quantitative
easing on Nov. 12. That includes securities bought by
reinvesting proceeds from payments on the mortgage debt bought
during the first round of easing, which ran from December 2008
to March 2010 and resulted in $1.7 trillion of purchases.
Stocks have rallied since Nov. 3, when the Fed announced
the policy, and inflation expectations have climbed. The five-
year breakeven rate between nominal and inflation-indexed bonds
rose to 1.8668 percent yesterday from 1.4665 percent on Nov. 3.
The dollar gained 2 percent against a basket of currencies in
the same period, contrary to warnings by some Republicans and
foreign governments that the Fed policy would result in a
decline.
Corporate bond sales worldwide in 2010 topped $3 trillion
for a second straight year, as issuance of junk-rated debt rose
to a record and borrowers locked in low yields.
Yields on 10-year Treasuries have increased to 3.33 percent
yesterday from 2.57 percent. Bernanke, 57, and other Fed
officials say the rise is a sign of improved investor confidence
in the U.S. economy, stemming in part from Fed policy.

Business Hiring

Bernanke said at a Jan. 13 forum that he aims to ensure
demand is strong enough to spur business hiring and reduce
joblessness at a faster rate. He hasn’t indicated whether he
favors additional asset purchases.
The six Fed governors and 12 regional presidents were to
present updated projections to each other for economic growth,
unemployment and inflation. The forecasts will be released Feb.
16 with minutes of the meeting.
Economists surveyed by Bloomberg News this month raised
their median forecast for average growth this year to 3.1
percent from 2.6 percent in December’s survey. Growth won’t be
fast enough to reduce unemployment below 9 percent this year,
according to the survey.
The government on Jan. 28 will release its first estimate
for economic growth for the fourth quarter of last year. Gross
domestic product probably expanded at a 3.5 percent annual rate,
up from 2.6 percent in the third quarter, according to median
forecast in a Bloomberg News survey of economists.

‘Reasonable Horizon’

Current growth “doesn’t satisfy the objectives of ever
getting back to full employment at a reasonable horizon,” said
Neal Soss, chief economist at Credit Suisse in New York and a
former Fed adviser under Chairman Paul Volcker. Soss’s firm
predicts growth this year of 3.4 percent when measured from
fourth quarter to fourth quarter.
Analysts surveyed by Bloomberg forecast the Fed will keep
its benchmark interest rate unchanged until the first quarter of
2012.
Some Fed officials indicated in December that “they had a
fairly high threshold for making changes to the program,”
according to minutes of the meeting.
Housing is showing some life. U.S. previously owned homes
were sold in December at the quickest rate in seven months as
buyers tried to lock in low mortgage rates, and new-home sales
rose more than economists forecast. Housing starts and home
prices haven’t shown similar gains.

Consumer Confidence

“While recent data suggests that the economy has started
to recover, this improvement has not yet resulted in sustained
job growth or higher consumer confidence, the two necessary
components of any housing recovery,” Jeffrey Mezger, chief
executive officer of KB Home, the Los Angeles-based homebuilder
that targets first-time buyers, said in a Jan. 7 conference
call.
Retail sales rose 0.6 percent in December, capping the
biggest annual increase in more than a decade. Banks’ commercial
and industrial loans increased for a seventh straight week
through Jan. 12, the longest sustained gain since 2008,
according to Fed data.
The improvement hasn’t been enough to convince Fed
officials that the job market will take off. Employers added
103,000 workers to payrolls in December, fewer than forecast by
economists. The unemployment rate fell to 9.4 percent from 9.8
percent as many people dropped out of the labor force.

‘Clear Room’

“Even with a relatively robust recovery, it will take
several years before we attain full employment and an inflation
rate close to a long-run expectation of 2 percent,” Boston Fed
President Eric Rosengren, who doesn’t have an FOMC vote this
year, said in a Jan. 14 speech. “There has been clear room for
— and indeed an imperative for — policy actions like those the
Federal Reserve has been pursuing.”
Union Pacific Corp. Executive Vice President John Koraleski
said on a Jan. 20 conference call that there are “a couple of
dark clouds” over the economy this year, including weak new-
home construction and the “continued high unemployment rate.”
Sixty-six percent of investors have a favorable view of
Bernanke, compared with 31 percent unfavorable, according to a
quarterly global poll of 1,000 Bloomberg customers who are
investors, traders or analysts conducted Jan. 21-24.
Fewer approve of Bernanke’s policies. A plurality of
respondents, 35 percent, say quantitative easing hasn’t had any
significant impact on the economy, according to the poll.
Another 33 percent say the asset purchases risk a rise in
inflation to dangerous levels. Just 27 percent say the plan is
working as intended to reduce unemployment and boost growth.

Taylor Criticism

Critics including Stanford University Professor John Taylor
have said the bond purchases risk sparking too much inflation.
Republican politicians including House Speaker John Boehner, as
well as Chinese, German and Brazilian government officials, have
said the policy may undermine the dollar.
Democrats have tried to blunt the criticism, with President
Barack Obama saying in November that he and the Fed have a
responsibility to help the economy expand.

For Related News and Information:
Federal Reserve links: FED
Credit crunch page: WWCC
Fed balance-sheet figures: ALLX FARW
Government relief programs: GGRP
Fed monetary policy: FOMC
Fed Web links: FRBM
Central bank rates worldwide: CBRT

–With assistance from Rich Yamarone in New York. Editors: James
Tyson, Christopher Wellisz

To contact the reporter on this story:
Scott Lanman in Washington at +1-202-624-1934 or
slanman@bloomberg.net.

To contact the editor responsible for this story:
Christopher Wellisz at +1-202-624-1862 or cwellisz@bloomberg.net

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