US markets slump as Fed hints at stimulus easing

20 Jun 2013 Evaluate

The US markets fell sharply on Wednesday, after Federal Reserve Chairman Ben Bernanke stated that central bank may scale back its bond purchases this year, depending on the economic outlook. The Fed’s newly revised forecast and Bernanke’s comments slammed US financial markets. Bernanke stated that the central bank may start to scale back its asset purchases later this year if the economy continues to strengthen, as the central bank expects. The Fed, which kept monetary policy on hold after a two-day meeting, signaled greater optimism about the economy, forecasting that the unemployment rate could fall to 6.5% by 2014, one year sooner than the central bank had previously estimated. The Fed added that it would keep rates close to zero so long as the jobless rate, now at 7.6%, was above its 6.5% threshold. The Fed chairman stressed that bank won’t start to hike rates even once its economic targets are met.

Besides, the Fed released its regular policy statement and the bank’s outlook showed subtle but important changes. The Fed told downside risks to the outlook have diminished since the fall and that the labor market had shown further improvement. The Fed didn’t seem worried about inflation even though the bank predicted the slowdown in inflation this year would be temporary. Fed officials trimmed their inflation forecast for 2013, but kept estimates for 2014 and 2015 steady at close to 2%. The central bank also told that US economy could expand faster than 3% in both 2014 and 2015. However, there were two dissents at the meeting. St. Louis Fed President James Bullard joined Kansas City Fed President Esther George, who dissented for the fourth straight meeting. Bullard raised concern that Fed should signal more strongly that it was willing to defend its inflation goal of 2%.

The Dow Jones Industrial Average lost 206.04 points or 1.35 percent, to close at 15,112.20, S&P 500 slipped by 22.88 points or 1.39 percent, to close at 1,628.93 while Nasdaq dropped 38.98 points or 1.12 percent, to end at 3,443.20.

The Indian ADRs closed mostly in red on Wednesday, Dr. Reddy’s Lab was down 1.07%, ICICI Bank was down 0.85%, Tata Motors was down 0.72% and Infosys was down 0.64%. On the other hand, Sterlite Industries was up 0.04%.

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