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FOMC announcement shocked global markets
By icn.com
The Federal Open Market Committee (FOMC) refrained from trimming its quantitative easing program, opposing forecasts, and agreed to keep interest rate unchanged between 0.0% and 25%, which surprised global markets. FOMC decision raised concerns over how hard it will be when the Fed decides to withdraw stimulus, and spread worries about the impact of next move.
It was highly anticipated that the Fed will cut its $85 billion in monthly asset purchases by $10 billion; however, not meeting anticipations pushed interest rate of the 10-year Treasury note down about 100 basis points, in addition to sending the S&P 500 Index to a record high.
Moreover, a group of market analysts considered the FOMC announcement a wise move, as the delay in exiting stimulus is mainly to maintain the U.S. GDP growth pace, and not to affect economic stability. However, another group of analysts considered the decision seen Wednesday as a shock, because a delay in implementing the exit strategy will cause a harder impact when withdrawing stimulus begins.
Markets may react with the Fed decision as if it is a message to the world saying the world`s largest economy is a lot weaker than expected, especially that Fed officials said in the announcement that the U.S. economy needs more evidence for growth before tapering the bond purchase program. Moreover, the decision can also be read as if it is a message saying global economic stability will remain for a new term.
The Federal Reserve expects GDP growth to be between 2.0% and 2.3% in 2013, lower than estimates released June 19 saying growth will be between 2.3% and 2.6%. Monetary policy makers expect the economy to expand between 2.9% and 3.1% in 2014, lower than earlier estimates between 3.0% and 3.5%.
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