Federal reserve cash injection alleviates crisis but may require further cuts in borrowing, warns economist
Federal Reserve chief: ‘We will not go back to crisis’
The Federal Reserve’s decision to use bond buying to combat a deep slump in the US economy has not been well received by some financial analysts. The move is expected to bolster US stocks and weaken the dollar, which has dropped 2.3 per cent against a basket of currencies this year.
A US stock index dropped 2.5 per cent and a US 10-year Treasury note fell 2 per cent, compared with its close Friday, though those trends, as well as weaker-than-expected employment data, have continued to weigh on investors. The Dow Jones industrial average tumbled more than 1,100 points or 1.3 per cent.
Markit’s US index of company futures rose 0.4 per cent, while the index of corporate earnings also dropped. “The Fed’s announcement is largely driven by the idea that it will keep interest rates higher as long as stocks are falling,” said Andrew Johnson, research analyst at Bar이천안마clays in New York.
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J세종출장마사지ohnson said the move would “encourage investors to take out longer-dated Treasury bills, suc퍼스트 카지노h as the US 10-year US-capped bond note, which they cannot sell”, even if the economy was on the verge of a crisis. He warned that if stocks continue to collapse “the only sensible thing” would be to continue buying US Treasuries.
Fed board members say they want to see the US jobless rate close to 5 per cent and, if conditions improve over the coming months and years, increase rates again soon. “We are doing what we believe is right to try to address the labor market situation with lower interest rates,” said a Fed source. “We don’t want a recession in the US.”
The Federal Reserve Board has been “very focused” on avoiding any large hikes in rates at its meeting on 11 October, as the US has become more stressed from its financial troubles, said the source, who declined to be named. The most recent Fed interest rate hike was only 2.3 percentage points last month and had been pushed to as much as 3 per cent by its policy committee.
The Fed also indicated that it would need to raise rates again in the near future if rates were expected to be lowe