US Fed shock sweeps through financial markets
AP and AFPLONDON/HONG KONG--The unexpected decision by the U.S. Federal Reserve to keep its monetary stimulus unchanged jolted financial markets Thursday, sending stocks and commodities sharply higher.
September 20, 2013, 12:21 am TWN
The Fed's decision Wednesday to maintain monthly asset purchases of US$85 billion was a surprise. Most Fed watchers were predicting that the central bank would begin the process of unwinding its stimulus, so-called “tapering.” A $10 billion monthly reduction was the consensus in markets. Instead, the Fed did nothing and chairman Ben Bernanke voiced worries over the state of the U.S. economic recovery and the still-high levels of unemployment.
Ben Bernanke warned of possibly “very serious consequences” from a brewing political battle in Washington over a new budget and the US debt ceiling.
“The Federal Reserve's policy is to do whatever we can to keep the economy on course. And so if these actions led the economy to slow, then we would have to take that into account, surely,” he told reporters.
He said the bank could still start reducing the bond-buying — which aims to hold down long-term interest rates — in the next three months, but only if the economic outlook improves.
“There is no fixed calendar,” he said.
The response in financial markets was immediate — stocks around the world surged, with the major U.S. indexes and Germany's DAX striking record highs, while the dollar and U.S. government bond yields were pummeled. Commodities, such as oil and gold, were also in demand as were financial assets in many emerging markets as much of the money generated by the stimulus over the years has been invested around the globe to seek potentially higher returns.
“Given the extreme moves in financial markets overnight and this morning, some participants have been on the receiving end of a short and sharp lesson on the dangers of attempting to second guess the U.S. Federal Reserve,” said Brenda Kelly, senior market strategist at IG.
In Europe, the FTSE 100 index of leading British shares was up 1.4 percent at 6,651 while Germany's DAX rose 1.1 percent to 8,733. The CAC-40 in France was 1.1 percent higher too, at 4,214.