The Federal Reserve announced two new twists to its efforts to stimulate the ailing US economy last night, yet stopped short of declaring another phase of quantative easing. There are considerable downside risks to the economic outlook, including strains in global financial markets,” the Fed said in a bid to justify its latest intervention. The Fed will buy $400bn long-term Treasury securities by the end of June next year, funded by selling the same amount in short-term paper. It hopes the move will weigh down interest rates, boosting borrowing and demand in the economy.
The struggling US housing market will be targeted by a second twist, recycling money from its maturing mortgage and housing agency bonds�back into the mortgage market.
Greek prime minister George Papandreou’s government said it would accelerate budget cuts, targetingcivil servants’ wages and pensioners to keep emergency loans flowing and avoid default. The policies were demanded by international lenders to ensure Greece reach defecit-reduction targets in a 110bn bailout and receive a payment due next month.
European indexes are expected to fail sharply today after the US Federal Reserve gave a downbeat assessment of the economy and said it faced “significant downside risks”.
Concerns about slowing growth as well as lack of co-ordinated action by policymakers to solve the Eurozone sovereign debt crisis and fears Greece could default has seen the FTSEurofirst 300 index fall 17% since late July.
US STOCK futures dropped overnight, signalling the world’s largest equity market may slide for a fourth straight day, as banks tumbled after Moody’s cut some US lenders’ credit ratings and because of the Fed’s warning.
ASIAN stocks fell sharply as the US Fed’s latest interventions failed to lift investor confidence. Hong Kong shares extended their fall to over 4%, the lowest position since July 2009. The Nikkei also tumbled, with domestic position adjustments, usual at this time of year, adding to economic concerns, and encouraging investors to lock in profits.
THE S&P 500 slid 2.9% yesterday for the biggest drop since August 18th after the Fed said it will purchase longer-term debt and sell shorter maturities to sustain an economic recovery, confirming speculation it was planning an “Operation Twist” similar to a 1960s central-bank program.
The DOLLAR rose the most in two weeks against the yen after the Federal Reserve acted to lower only long-term borrowing costs and on concern the Bank of Japan may act to stem gains in the nation’s currency. THE EURO rallied versus the yen as Greece said it will accelerate budget cuts to keep emergency loans flowing.
OIL fell to the lowest in more than two weeks in New York as investors speculated that fuel demand will falter after the US Fed’s pessimism for the economic outlook of the world’s biggest crude-consuming nation.
Copper slumped for a fifth day, after the Fed’s statements on a weakening economy eroded prospects for industrial-metals demand. Copper has slumped as concerns that the global economy is slowing outweighed a shortfall in the metal used to make cables.