Santa Bernanke Delivers Early Christmas

Pimco’s Bill Gross, manager of the world’s largest bond fund, estimates the economy will need to add roughly 200,000 jobs per month for the next 4-5 years before the unemployment threshold is met. Gross also believes it is a “decent stretch” that the Fed will be able to control interest rates at such low levels in the coming years.

Although, even if unemployment falls to under 6.5 percent, Fed Chairman Ben Bernanke said other factors such as labor force participation, hours worked and inflation expectations will be considered before raising interest rates.

While the Fed placed a new bow on its latest QE package, Mr. Market showed more excitement during the anticipation phase. The S&P 500 hit as high as 1,438 on Wednesday, but barely closed in the green at 1,428. Meanwhile, the Dow reached a high of 13,329 on the day, but finished with a loss at 13,245. Even Treasuries declined after the Federal Reserve announcement, with thirty-year yields hitting a one-month high.

The Federal Reserve and European Central Bank continue to apply additional monetary easing at more frequent intervals, but the effects are waning with each package. The law of diminishing returns at its finest? Even Santa loses his effect after so many visits.

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