By Caroline Salas Gage and Jeff Kearns
"Chairman Ben S. Bernanke is increasingly aiming for gains in stock prices as the Federal Reserve reaches for new tools to spur the three-year recovery and reduce unemployment stuck above 8 percent.
"Bernanke, setting the stage for a third round of quantitative easing in an Aug. 31 speech in Jackson Hole, Wyoming, said the strategy works in part by boosting the prices of assets such as equities. In a speech yesterday in Indianapolis he said higher stock and home prices would provide further impetus to spending by businesses and households.
“It’s pretty clear that the stock market is the most important transmission mechanism of monetary policy right now,” said Peter Hooper, chief economist at Deutsche Bank AG in New York. “That’s where you’re getting most of the action in terms of lift to the economy. It’s the stock market that’s going to have to be carrying the load.”
"The Fed’s large-scale asset purchases will probably lift stocks by 3 percent over the two years following the Sept. 13 announcement of QE3 as low yields on government bonds push investors into risker assets, according to a Sept. 27 report by Deutsche Bank economists. They also estimate that QE will lift home prices by 2 percent over two years, assuming the Fed maintains purchases of Treasuries and mortgage debt through 2013. ..."
hat tip to www.drudgereport.com