One of my AdvisorOne blogs on Monday after the market freefall mentioned three specific strategies the Federal Reserve might employ to support the economy. Based on Tuesday’s announcement, they are going for Option 1: allowing the dollar to devalue in an attempt to stimulate exports.
The decision of the Fed to follow this path was unusual due to the significant dissension among its board. Three Fed governors voted against the plan, which is highly unusual. Bernanke’s open-ended verbiage—basically, that the Fed has a number of tools at its disposal and will use them when needed—was very similar to what he said months before QE II was initiated. It seems likely another round of Fed purchases will follow.
We were fortunate to be included in a conference call yesterday with Assistant Secretary of the Treasury Mary John Miller. She clearly stated Treasury’s view of “growth before austerity.” Time will tell if the markets take that message to heart; in the meantime, valuations could get even more compelling.