You are here: Home - Investing -

Markets slide as Fed is split over future stimulus

Written by:
Imminent plans for another round of US quantitative easing were ruled out yesterday following the publication of the US Federal Reserve minutes, disappointing markets.
Markets slide as Fed is split over future stimulus

The minutes also revealed a split between the committee members over the timing of future stimulus moves.

US stock markets closed down on the news, with the Dow Jones slipping down 0.38% to 12,604 and the S&P 500 closed flat at 1,341 and the Nasdaq fell 0.49% to 2,887.

Asian markets also fell sharply following the publication of the minutes. The Nikkei 225 fell 1.48% to 8,720 and the Hang Seng Index closed 1.7% down at 19,090.

The minutes published on Wednesday demonstrated concerns that unemployment would remain elevated for another five to six years, but most officials did not see this as reason enough to expand previous efforts to stimulate growth at this time.

A few thought further policy stimulus was immediately necessary, while several others said it might be needed if the US economy lost momentum – if risks to growth deteriorated and if inflation looked set to remain below target.

Officials also expressed concern at the meeting about risks to the US economy stemming from the eurozone debt crisis, the possibility of a “significant slowdown” in China’s economy and the prospect of deep US government-spending cuts and tax increases scheduled to be put into effect at year-end.

Although no imminent action was taken to expand the Fed’s balance sheet, the committee did extend its Operation Twist programme, although several members voiced concerns the move would not be enough to life the US economic recovery from its soft patch.

Paul Edelstein, director of financial economics at HIS Global Insight, said the minutes reveal the Fed is still too optimistic in its outlook.

“Another downgrade is expected later this year or early next year, even if jobs growth strengthens to the 100,000-150,000 range. This will be the trigger for the Fed to initiate another round of bond purchases, which we expect to total roughly $500bn, to include long-term Treasuries and mortgage-backed securities, and to start before or during the first quarter of 2013,” he said.

“Could action come sooner, perhaps at the upcoming July 31-August 1 meeting? We think this is probably too soon, although economic data have been clearly unfavourable since the Fed last met (bad ISM readings and another dismal jobs report). Stay tuned to Bernanke’s Congressional testimony next week for more guidance.”

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get?

News and updates on everything to do with coronavirus and your personal finances.

Everything you need to know about being furloughed

If you’ve been ‘furloughed’ by your company, here’s what it means…

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
HSBC faces hefty fine over failing to control money laundering

HSBC is facing an estimated $1bn fine from regulators in the US for failing to have the right anti money...