The Federal Reserve’s announcement Wednesday that it would purchase $300 billion in U. S. Treasuries over the next six months as part of an additional $1.15 trillion in commitments to stimulate the moribund economy caused a massive rally in 30-year Treasury bond futures. The long bond railed seven handles in less than five minutes (see chart).
The Fed stated in its release that since the last FOMC meeting in January — when it cut the Fed Funds rate to 0-0.25% — “the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending.”
The Fed also stated that it “expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”
Despite this the U.S. dollar index dropped significantly and blogs and message boards were rife with speculation that this could lead to hyper inflation.
