The Federal Reserve's decision to fire up the printing presses to the tune of $1 trillion continued to wash over world financial markets on Thursday, pushing the price of government bonds higher and dragging down the value of the dollar.
On Wall Street, stocks fluctuated in early trading, a day after they bounced in response to the Fed's plans to buy up $750 billion in mortgage-backed securities and $300 billion in Treasury debt.
The Dow opened higher but was down about 35 points at 11:30 a.m., and the broader Standard & Poor's 500-stock index was also slightly lower. The technology-heavy Nasdaq index was off a fraction of a percent.
Financial shares wavered between gains and losses while shares of companies that produce basic goods like plastics, chemicals and metals pushed the broader markets higher.
Many analysts hailed the Fed's latest plan as a bold but risky gambit to stimulate the sagging economy and lower mortgage rates. Moments after the central bank announced its plans, gold prices shot up and yields on the benchmark 10-year Treasury note posted their biggest drop in years as investors welcomed a big new buyer to the market for government debt.
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The Fed's Open Market Committee also announced it would keep interest rates near zero, and said it expected its target interest rates to remain exceptionally low "for an extended period."
Unable to cut its target rate any more to try to jump-start the economy, the Fed is now ratcheting up other efforts like buying securities and essentially printing money to try to loosen credit markets and put the financial system back on its feet. But economists said that such efforts could lead to long-term inflation, and could drive down the value of the dollar.
"They clearly bit the bullet," said James Knightley, senior economist at ING Financial Markets in London. "There's no guarantee that this will actually work. While they are expanding the money supply, it's only going to generate economic activity if people actually borrow. You need the demand on the other side to actually get the credit growth."
The Fed's move follows similar measures across the globe. The Bank of England is also buying government securities, the Swiss are selling francs to try to push down the value of their currency, and the Bank of Japan announced Wednesday that it would expand its purchase of government debt by almost 30 percent. As the euro, the yen and other major currencies continued to gain ground against the dollar on Thursday, the price of oil (which is traded in dollars) rose $3.74 to $51.80 a barrel in New York, its highest point since late November. While crude oil is still cheaper than its summertime peaks of more than $145 a barrel, prices have rebounded from their lows of $33 a barrel.
The rise in oil prices gave a boost to energy companies like Chevron, Exxon Mobil and Marathon Oil.
Interest rates on government debt skidded late last year as the financial crisis sent investors running for cover in save havens like Treasury bonds, but they rose early this year as investors began to anticipate a flood of new government spending from stimulus projects. On Thursday morning, the yield on the 10-year note fell slightly to 2.52 percent, its lowest levels since late January.
As investors continued to react to the Fed's moves and watched the battle over bonus payments by American International Group continue to unfold, the government offered another troubling data point from the labor market. The Labor Department reported that continuing claims for unemployment insurance rose to 5.47 million for the week ending March 7 while first-time unemployment claims fell slightly, to a seasonally adjusted 646,000.
