On Wednesday, the Fed announced that it would cut another $10 billion in monthly bond purchases, referencing "growing underlying strength in the broader economy" for its decision. It is also "likely"that there will be another pullback at the next meeting in March. However, there will be no change in the benchmark short-term interest rate which will remain near zero.
This announcement comes amidst the recent economic turmoil in emerging markets. Turkey and South Africa's currencies declined sharply in value due to fear of insufficient monetary protection against a foreign investment pullback. As a result of this, the US stock market readjusted downward, with the Dow falling 1%. On the other hand, the Fed's reduced bond purchases is contributing to the global shift in investments as people prepare to take advantage of greater returns from higher interest rates in the US.
1 comment:
I think this is a good time to implement this policy. The Fed has been buying back bonds for too long, and now the economy is recovering and creating more jobs. The fact that Fed wants to implement this policy is a good signal, because after all they know the market the best.
This article also mentions short-term interest rate. If Fed increases the interest rate, it will have a huge effect on the financial market globally but when Fed will increase the rate is still a question because Fed still wants banks to recover after the crisis and the inflation is well below target.
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