In yesterday’s statement that interest rates would remain low until late 2014, the Federal Reserve admitted to the failures of the policies under Chairman Ben Bernanke. Is it any surprise that gold and the dollar reacted the way they did?
If Bernanke’s policies and programs were working, the market would set the level of interest rates. Instead, the Federal Reserve let all know today that the intervention it started back in 2007 would endure for at least seven years. As a result, the United States dollar hit its low for the year. The PowerShares DB US Dollar Bullish ETF (UUP, quote) was down on above average volume, while the exchange traded fund for gold, SPDR Gold Shares (GLD, quote), rose $4.51 on very heavy volume.
For interest rates to remain low across the globe, the Federal Reserve will have to purchase Treasury bonds as it did in Quantitative Easing 2 from November 2010 to June 2011, which also reduced the US dollar in value.
Each purchase increases the Fed’s bulk, though. Since 2007, when the Federal Reserve began purchasing assets to keep lenders solvent and lower interest rates, the balance sheet for what has become the global central banker has increased from around $700 billion assets to about $3 trillion.