NEW YORK, WASHINGTON and HONOLULU (HawaiiNewsNow) - The Federal Reserve Board has decided not merely to do more stimulus but to make its program open-ended. Wall Street reacted with a buying spree that benefited brokers.
The Fed said it would spend $40 billion a month to buy mortgage-backed securities while still buying long-term Treasury notes. It also said it was still committed to keeping interest rates very low for years so businesses can access capital.
The returns on bonds rise when fewer people buy bonds, and fall when everyone is buying them. By intervening in the market to buy bonds, the Fed will lower bond returns, driving investors who want better returns back to stocks.
It didn't take long to see that the move caused an immediate improvement on Wall Street regardless of what later happens on Main Street. After barely moving for days, the Dow was up more than 150 points an hour after the Fed revealed its plan.
Hotel stocks like Starwood and Disney rose on the expectation of economic improvement while airline stocks like United and Delta fell on the expectation of an improving economy sending oil prices - and therefore jet fuel - higher.
Hawaii stocks caught the wave. Alexander & Baldwin, Hawaiian Electric and Hawaiian Airlines all rose one percent in the first half hour after the Fed announcement.