At 1 p.m. on Thursday, the U.S. Treasury Department will hold an auction of $29 billion in seven-year notes – an event that usually goes unnoticed, but today is creating strong demand in markets.
The Federal Reserve announced Wednesday that, while it was prepared to offer additional stimulus to the economy if needed, it would hold interest rates at near zero until at least 2014. This, combined with indications that he European Union was again entering into a period of instability, sent gold prices over $1,700 per ounce – a six and a half week high.
Fed Chairman Ben Bernanke is understood to be keeping the options open for another round of quantitative easing (QE3) if it helps rouse a relatively anemic economic recovery. The markets responded warmly; the Dow Industrial Average is up over 13 percent for the week.
Critics of Federal Reserve interest policy say that the Fed cannot keep interest rates as low as they are into perpetuity – eventually they will have to rise or risk runaway inflation. Many are skeptical that another round of easing could rise these risks further – while any inflationary pressure would be acutely felt by low and middle income families, those opposed to QE3 say that another round of inflation could wipe out savings overnight and that a gradual return to sound interest rates is preferable to a catastrophically instant return to those rates.
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