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US markets closed mostly lower after Fed cuts growth outlook

21 Jun 2012 Evaluate

The US markets closed mostly lower on Wednesday, after the Federal Reserve cut growth estimates and expanded its economic stimulus program known as ‘Operation Twist’. The Federal Reserve softened its growth and inflation forecasts over the next three years and stated the unemployment rate will hold above 8% through the end of 2012. The Fed also cut its inflation forecast down aggressively, to between 1.2% and 1.7% this year, as opposed to its forecast in April between 1.9% and 2%. The Fed's forecast for growth this year is down to a range of 1.9% to 2.4%, down from 2.4% to 2.9% in April -- and its April 2011 forecast that 2012 growth would range between 3.5% and 4.2%.

Moreover, the Federal Reserve took another unconventional step to boost the economy, and Fed Chairman Ben Bernanke stated that the central bank stood ready to take more action if needed.  Ending a two-day meeting, the Fed stated it would extend its holdings of long-term government bonds by $267 billion in another effort to bring down borrowing costs. The Fed, which is selling an equal amount of short-term securities to hold steady the size of its $2.9 trillion balance sheet, is extending the Operation Twist program that was due to end in June through the end of the year. Bernanke also enlightened that he was watching the labor market closely and stated that Fed may take additional steps to spur growth, including additional asset purchases, if labor markets don’t continue to improve.

In Europe, French President Francois Hollande stated that European leaders are exploring ways for the rescue fund to buy debt from countries that have taken fiscal consolidation measures. Also, German Chancellor Angela Merkel reportedly stated that it was possible that the European rescue fund could purchase bonds, but added that her comment reflected a purely theoretical statement about the legal situation.

The Dow Jones Industrial Average closed lower by 12.94 points or 0.10%, at 12,824.40. The S&P 500 finished the day down by 2.29, or 0.17 percent, to 1,355.69 while the Nasdaq closed higher by 0.69 points or 0.02 percent, to 2,930.45.

Most of the Indian ADRs closed in green; Dr. Reddy’s Lab was up 0.55%, Tata Motors was up 0.40% and Tata Communications was up 0.09%. On the flip side, Infosys was down by 0.30% and ICICI Bank was down by 0.05%.

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