US Federal Reserve Extends Operation Twist, Commodities Drop

So Ben Bernanke and the US Federal Reserve finally gave the markets the steroids (Bernanke Put), which they have been desperately expecting.

From Bloomberg,

The Federal Reserve will expand its Operation Twist program to extend the maturities of assets on its balance sheet and said it stands ready to take further action to put unemployed Americans back to work.

The central bank will prolong the program through the end of the year, selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in a bid to reduce borrowing costs and spur the economy.

“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference in Washington following a two-day meeting of the Federal Open Market Committee. “Additional asset purchases would be among the things that we would certainly consider.”

Policy makers moved to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Fed officials today lowered their outlook for growth and employment, foreseeing a jobless rate of at least 7.5 percent at the end of 2013.

But there has been a material difference. Operation Twist 2 represents a little more than three quarters of the original $400 billion programme.

Yes, US markets declined marginally in response.

But the significant drops in gold and importantly oil prices (nearly or at the brink of breaking down), whether seen from a consumption or from a monetary inflation perspective, have not been consistent with, or supportive of, the actions of the sprightly stock markets. Said differently, the FED has pulled their punches and the commodity markets noticed them.

Be very careful out there.