ben bernanke
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Today was a big day at the Federal Reserve.
First the scoreboard:
Dow: 13,245, -2.9, -0.0 percent

S&P 500: 1,428, +0.6, +0.0 percent

NASDAQ: 3,013, -8.4, -0.2 percent
And now the top stories:
  • All eyes were on the Federal Reserve today, which wrapped up its two-day Federal Open Market Committee meeting and published its monetary policy statement.  Stocks were flat ahead of the announcement, surged right after the announcement, and fell back to break-even by the end of the trading session.

  • The big announcement: The Fed is now employing quantitative thresholds to guide monetary policy.  This is also known as the "Evans rule" after Chicago Fed President Charles Evans who first proposed it. Specifically, the Fed now plans to keep interest rates "exceptionally low" as long as inflation is at or below 2.5 percent and the unemployment rate is above 6.5 percent.

  • The Fed also announced that it would purchase up to $45 billion worth of Treasury securities monthly in its efforts to keep interest rates low. This is also being referred to as quantitative easing, or QE4.

  • The FOMC also cut its U.S. GDP growth forecast ranges for 2012 through 2014.  Most Fed officials expect rates to stay near-zero until 2015.

  • During his press conference today, Bernanke said the 6.5 percent unemployment threshold should not be confused with the Fed's long-run unemployment target which is 5.2-6.0 percent.  He also made clear that the new program does not mean the Fed is on "autopilot," meaning that breaching the quantitative thresholds wouldn't automatically trigger tighter policy.

  • Bernanke also stressed that monetary policy has its limits.  He noted that "Clearly, the fiscal cliff is having effects on the economy."  Also, he warned that if we go over the fiscal cliff, "I don't think the Fed has the tools to offset that event."

  • Regarding the fiscal cliff, we still have no deal.  "Don't make plans for Christmas," said House Speaker John Boehner.

  • JP Morgan's top strategist Tom Lee doesn't think the market will be too pleased with this ongoing uncertainty.  In his new 2013 outlook, he forecasts the S&P 500 falling to 1,400 in the middle of 2013 before rallying to 1,580 by year-end.