Downgrade Doesn’t Matter as Bonds Show Faith in Fed After S&P

File under who [aside from the GOP/Tea Party] didn't see that coming?  

Business Week:

 Federal Reserve Chairman Ben S. Bernanke signaled he may expand record monetary stimulus over the most opposition of his tenure to revive the faltering recovery and reduce unemployment stuck around 9 percent.

The central bank said yesterday that officials “discussed the range of policy tools” to strengthen growth and are “prepared to employ these tools as appropriate” while pledging to keep the benchmark interest rate near zero until at least mid-2013. Three policy makers dissented from the decision for the first time since Bernanke, 57, became chairman in 2006.

“Bernanke will push through QE3 if the economic conditions warrant it,” said Steve Lear, who helps manage $150 billion at J.P. Morgan Asset Management. The first two rounds of so-called quantitative easing totaled $2.3 trillion yet have left the Fed with a recovery that officials yesterday judged to be “considerably slower” than anticipated.

Treasury yields plunged to record lows, stocks soared and the dollar fell on the Fed’s first move to bolster stimulus since November 2010, when officials agreed to the $600 billion second round of asset purchases.

“The chairman will do the right thing for the economy regardless of what people might say,” said Randall Kroszner, a professor at the University of Chicago’s Booth School of Business who served on the Fed board under Bernanke from March 2006 to January 2009. “Bernanke has shown his skin is elephant- thick.”

The Standard & Poor’s 500 Index rose 4.7 percent to 1,172.53, the biggest gain since March 2009, one day after the worst drop since December 2008. The two-year government-bond yield dropped 0.07 percentage point to 0.19 percent after touching a record low of 0.16 percent, while the 10-year yield reached a low of 2.03 percent and closed at 2.25 percent.