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Federal Reserve cuts additional $10bn from economic stimulus programme Federal Reserve cuts additional $10bn from economic stimulus programme
(7 months later)
The US Federal Reserve instituted a further cut to its massive economic stimulus programme on Wednesday, in a move that rattled stock markets already worried by recent poor jobs figures.The US Federal Reserve instituted a further cut to its massive economic stimulus programme on Wednesday, in a move that rattled stock markets already worried by recent poor jobs figures.
After a two-day meeting – the last to be headed by outgoing chairman Ben Bernanke – the Fed announced a $10bn cut to its $75bn-a-month bond-buying programme, known as quantitative easing (QE). The decision received the unanimous approval of the federal reserve open markets’ committee, the first time no one has dissented since June 2011.After a two-day meeting – the last to be headed by outgoing chairman Ben Bernanke – the Fed announced a $10bn cut to its $75bn-a-month bond-buying programme, known as quantitative easing (QE). The decision received the unanimous approval of the federal reserve open markets’ committee, the first time no one has dissented since June 2011.
The cut follows an earlier $10bn reduction to the programme in December. At this rate, the programme, which started in September 2012, could be over by the end of the year.The Fed also repeated its pledge to keep interest rates close to zero, where they have been since 2008.The cut follows an earlier $10bn reduction to the programme in December. At this rate, the programme, which started in September 2012, could be over by the end of the year.The Fed also repeated its pledge to keep interest rates close to zero, where they have been since 2008.
In its statement the Fed said that economic activity had picked up in recent quarters but noted that problems remained. “Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat,” it said.In its statement the Fed said that economic activity had picked up in recent quarters but noted that problems remained. “Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat,” it said.
Despite these headwind the Fed said it saw “cumulative progress” in the US economy - the same phrase it used in December when Bernanke announced the first QE cut and signalled that officials were likely to announce further cuts at subsequent Fed meetings, provided the economy improved in line with expectations. Despite these headwind the Fed said it saw “cumulative progress” in the US economy - the same phrase it used in December when Bernanke announced the first QE cut and signalled that officials were likely to announce further cuts at subsequent Fed meetings, provided the economy improved in line with expectations.
Shortly after the December’s decision the Labor Department released disappointing jobs growth figures, showing that the US had added just 74,000 new jobs in that month. In previous months, the department had posted rises of 200,000 and above.Shortly after the December’s decision the Labor Department released disappointing jobs growth figures, showing that the US had added just 74,000 new jobs in that month. In previous months, the department had posted rises of 200,000 and above.
Monthly figures can be notoriously volatile but the latest statistics also highlighted a more worrying fact: only 62.8% of the adult workforce participated in the jobs market in December, down 0.2 percentage points from the previous month. The participation rate – the number of people employed or actively looking for work – has fallen to levels unseen since the 1970s. The jobs figures came as a surprise following other economic indicators that seemed to the US economic recovery was finally on a firmer footing.Monthly figures can be notoriously volatile but the latest statistics also highlighted a more worrying fact: only 62.8% of the adult workforce participated in the jobs market in December, down 0.2 percentage points from the previous month. The participation rate – the number of people employed or actively looking for work – has fallen to levels unseen since the 1970s. The jobs figures came as a surprise following other economic indicators that seemed to the US economic recovery was finally on a firmer footing.
Further bad economic news has rattled investors in recent weeks. The Fed committee met amid new concerns of financial crisis in Turkey, as well as signs of slowing growth in China and other emerging markets. US stock markets, which hit record highs last year, have been losing momentum in 2014. They opened lower Tuesday as optimism about efforts to stabilise emerging-market currencies faded, and as investors awaited the Fed statement. The Dow Jones industrial average had lost 140 points (0.88%) before the Fed’s decision and continued to fall after the announcement.Further bad economic news has rattled investors in recent weeks. The Fed committee met amid new concerns of financial crisis in Turkey, as well as signs of slowing growth in China and other emerging markets. US stock markets, which hit record highs last year, have been losing momentum in 2014. They opened lower Tuesday as optimism about efforts to stabilise emerging-market currencies faded, and as investors awaited the Fed statement. The Dow Jones industrial average had lost 140 points (0.88%) before the Fed’s decision and continued to fall after the announcement.
Turkey’s currency crisis already seems to have spread. South Africa was forced to raise interest rates for the first time since 2008 on Wednesday in an attempt to halt a sell off by investors concerned about a crash in the emerging markets. Brazil, Indonesia and Thailand are seen as the next most likely emerging market to raise rates.Turkey’s currency crisis already seems to have spread. South Africa was forced to raise interest rates for the first time since 2008 on Wednesday in an attempt to halt a sell off by investors concerned about a crash in the emerging markets. Brazil, Indonesia and Thailand are seen as the next most likely emerging market to raise rates.
US stock markets, which hit record highs last year, have been losing momentum in 2014. They opened lower Tuesday as optimism about efforts to stabilize emerging-market currencies faded, and as investors awaited the Fed statement. the Dow Jones Industrial Average had lost 140 points (0.88%) before the Fed’s decision and continued to fall after the announcement.US stock markets, which hit record highs last year, have been losing momentum in 2014. They opened lower Tuesday as optimism about efforts to stabilize emerging-market currencies faded, and as investors awaited the Fed statement. the Dow Jones Industrial Average had lost 140 points (0.88%) before the Fed’s decision and continued to fall after the announcement.
In a note to investors Dan Greenhaus, chief strategist at broker BTIG said: “Ultimately, the Fed sort of had no choice but to reduce purchases at this meeting. If they had paused, they risked sending a signal to markets that they lacked conviction, were slaves to market rather than economic forces and/or were far more worried than the average investor, the latter of which could have caused a fair bit of panic among risk assets. So they did as was expected and at least judging by the initial market response – little – this was the best course of action.” In a note to investors Dan Greenhaus, chief strategist at broker BTIG said: “Ultimately, the Fed sort of had no choice but to reduce purchases at this meeting. If they had paused, they risked sending a signal to markets that they lacked conviction, were slaves to market rather than economic forces and/or were far more worried than the average investor, the latter of which could have caused a fair bit of panic among risk assets. So they did as was expected and at least judging by the initial market response – little – this was the best course of action.”
He said the Fed was right to ignore current global issues. “They, as of now, have not risen to anything resembling a concerning level,” he wrote.He said the Fed was right to ignore current global issues. “They, as of now, have not risen to anything resembling a concerning level,” he wrote.
Paul Ashworth, chief US economist at Capital Economics, said the Fed statement, while mixed, was notably more positive than the last one. “The problems in emerging markets didn't even warrant a mention in the statement accompanying the FOMC's decision. Indeed, the surprise is that statement was notably more upbeat on the economic outlook. It notes that economic growth had ‘picked up in recent quarters’ and that consumption and business investment had ‘advanced more quickly in recent months.’" He said thePaul Ashworth, chief US economist at Capital Economics, said the Fed statement, while mixed, was notably more positive than the last one. “The problems in emerging markets didn't even warrant a mention in the statement accompanying the FOMC's decision. Indeed, the surprise is that statement was notably more upbeat on the economic outlook. It notes that economic growth had ‘picked up in recent quarters’ and that consumption and business investment had ‘advanced more quickly in recent months.’" He said the
Bernanke will hand over the chairmanship of the Fed to vice chair Janet Yellen on February 1. Yellen, the first woman to head the chair, has been a staunch ally of Bernanke’s policies and is expected to follow his plan to slowly cut back on QE while keeping interest rates at historic lows.Bernanke will hand over the chairmanship of the Fed to vice chair Janet Yellen on February 1. Yellen, the first woman to head the chair, has been a staunch ally of Bernanke’s policies and is expected to follow his plan to slowly cut back on QE while keeping interest rates at historic lows.