Never a dull moment with the Fed…..

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I just got this from the Wealth Management Group at my bank…..

An announcement at 9:01am eastern from the Fed that it is working in conjunction with the central banks of England, Canada, Switzerland and Europe to hold several special auctions over the next 60 days to inject liquidity into financial markets by holding auctions to that would buy a “wide variety” of short-term fixed income securities (…this is something the Fed did after 9/11 to inject liquidity into financial markets). Further, the Fed said it may make this a permanent program.As a result, the fixed income markets are responding by greatly lowering the yield differential between Treasuries and spread product (i.e - lower borrowing rates for institutions) - and - stock market futures are rocketing higher (i.e - the S&P 500 Futures going from +14 prior to the announcement to currently at +30).

What a 24 hour period…

For our clients, we would say that the Fed perhaps accelerated the implementation of a program that they had been developing for some time - given the market’s reaction to their action and statement at 2:15pm yesterday.

This action is good news to unfreeze credit markets and lower borrowing costs. This is good news for the economy and financial markets are reacting in like manner.

Expect a huge surge in stocks on the open - with Financials likely leading to the upside - despite many pessimistic individual reports from banks this morning. European markets have turned moderately higher on the news. We will then see how markets react this afternoon…

Very interesting times…but good news that this Fed - while a perplexing group - seems to be back to supporting the credit markets, and as a result, the economy.

I asked him what he thought that meant for mortgage rates and he said he thought it would improve them relative to the Treasuries…..