Fed June policy boosts global markets
June 19, 2014, 4:53 am

Yellen said that “economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter” [Xinhua]

A day earlier, the Fed announced that it will continue tapering its monthly bond buy-back programme (known as quantitative easing – QE) by another $10 billion bringing the fund total to just $35 billion.

The QE is expected to be fully tapered by the end of this year.

Although it sees evidence that the US economy pulled out of an economic slowdown nicknamed “the winter chill”, the Fed acknowledged that recovery from recession created by a financial crisis since 2008 is slow.

“Information received since the Federal Open Market Committee met in April indicates that growth in economic activity has rebounded in recent months,” the Fed said following the FOMC’s two-day meeting.

While Yellen said that GDP growth declined in the first quarter of this year – it shrank at an annual rate of 1 per cent due to harsh wintry weather – she holds that “economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter”.

However, the FED cut its 2014 economic growth rate to a range of of 2.1 per cent to 2.3 per cent from an earlier forecast of 2.8 per cent to 3.0 per cent.

“Overall, the [FOMC] Committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labour market,” she said.

Yellen said that although the unemployment rate has fallen in previous months to 6.3 per cent, it yet remains too high; she blamed significant labour “underutilisation”.

She said: “Overall, the Committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market.”

Yellen’s comments coupled, with FOMC assurances that short-term interest rates will remain at their near zero level, created an uptick in stock trading.

The Standard & Poor’s 500-stock index rose 14.99 points (0.77 per cent) to close at yet another record of 1,956.98.

The Dow Jones industrial average added 98.13 points, or 0.6 per cent, to 16,906.62, while the Nasdaq composite gained 25.60 points, or 0.6 per cent, to 4,362.84.

Stocks overseas also went up by closing on Wednesday. Germany’s DAX rose 0.1 per cent to 9930.33, and London’s FTSE jumped 0.2 per cent to 6778.56.

The French CAC 40, however, fell by 0.1 per cent.

In Asia, Japan’s Nikkei briefly touched a nearly five-month high and shot up 1.5 per cent.

The MSCI Asia Pacific Index – and international index of 21 countries outside the US and Canada – rose by 1.2 per cent, setting a six-year record.

Source: Agencies