Markets Plummet on Fed Announcement
September 22, 2011 TheFreshOutlook  |
Global stocks plummet as investors react negatively to the US Federal Reserve’s announcement of limited action to prevent another recession.
Stock markets around the world have experienced sharp falls following an announcement by the Federal Reserve (America’s Central Bank) that it is to purchase $400bn worth of long term Treasury bonds in an effort to lower interest rates. “Operation Twist”, says the Fed, will cut the cost of borrowing and ease pressure on indebted small businesses and homeowners.
The move comes as fears of a double-dip recession grow following little sign of improvement in the various crises currently affecting the global economy.
Such a sentiment was not lost on the Fed who outlined a dreary outlook for the future.
“Recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated. There are significant downside risks to the economic outlook, including strains in global financial markets,” said the Fed in a statement.
Market reaction to the announcement has not been positive. Japan’s Nikkei closed down 2.1% on Thursday, whilst Hong-Kong’s Hang Seng fell by 4.9%. In London, the FTSE 100 has so far fallen by 4%. The Dow Jones is also expected to fall when Wall Street opens later today.
Investors, it seems, are unconvinced that “Operation Twist” will have any lasting impact. Many analysts say the borrowing prices are not a major factor in the current malaise.
“The cost of borrowing simply isn’t the problem. Businesses don’t have the confidence to invest and half of all mortgage owners don’t have the home equity needed to refinance at lower rates,” said Paul Ashworth, an economist at Capital Economics.
The sharp fall in market activity has been attributed by many to the Fed’s negative outlook for the Global Economy.
“It is another blow after the Fed’s language about downside risks on the economy really hurt sentiment,” said David Thurtell of Citigroup whilst speaking to Reuters.
Meanwhile, it has emerged that the Bank of England’s Monetary Policy Committee is considering a new round of quantitative easing, which would circulate new money into the UK Economy. The news comes just months after some members were calling for interest rates to be raised, thereby highlighting the economic deterioration during recent months.
By Dermot Tobin
[Image Courtesy Of trackrecord]
