THE HEAD OF the world’s most influential central bank has delivered what investors worldwide have been waiting for.

US Federal Reserve Chairman Ben Bernanke unveiled on Sept 13 the central bank’s third round of quantitative easing in a move to boost the world’s largest economy and revive its labour market.

QE3, as the programme is loosely called, will involve the Fed buying US$40 billion ($48.9 billion) worth of mortgage-backed debt every month from financial institutions, with immediate effect, to keep long-term interest rates low. This is to rouse the ailing housing market, which Bernanke calls a missing piston in the US growth engine.

Notably, unlike the previous two rounds of quantitative easing, QE3 will have no fixed end date. The programme will cease only when the job market shows substantial improvement.

“Ben Bernanke’s bazooka is better than thought,” says DBS Group Research. “This is a more aggressive move than what investors had expected.”

The Fed will also keep its short-term benchmark rate near zero until at least mid-2015. It had previously said its federal funds rate was likely to remain low until late 2014. Now, it has pledged to do more if the employment situation fails to improve.

The US jobless rate has been holding above 8% for more than three years. “From what we have seen over the last 20 years, the Fed has only lifted the Fed funds rate when the unemployment rate falls to the 4-5% range,” says Maybank Kim Eng.

Stock markets immediately rallied on news of the Fed’s latest moves. The Dow Jones Industrial Average rose 1.6% on Sep 13 to 13,539.86, its highest close since December 2007.

Maybank Kim Eng expects the “risk-on trade” to last for a week or so before consolidation sets in. For the rally to continue, it says investors need to see an improvement in how Europe handles its debt crisis. Defensive plays such as REITs and dividend stocks are therefore not likely to face “any meaningful sell-down”, it adds.

In Singapore, commodity stocks such as  Wilmar International, Noble Groupand  Olam International  were among some of the best performers on Sept 14, as investors bet that commodity prices would benefit from the increased liquidity in the financial system.