Though the headlines from a largely uneventful Federal Reserve meeting were as expected, investors picked up on the notes of concern sprinkled throughout the statement, sending them into a downward spiral.
Interest rates are set to remain near zero potentially until 2023, in an attempt to ‘above inflation moderately above 2% for some time so that inflation averages 2% over time.’ The central bank also announced a fairly chunky revision to its 2020 GDP forecasts, stating it now expects the USA to contact by 3.7% this year, instead of the previously estimated 6.5%.
On paper, this is all pro-market stuff. Yet, though nothing was necessarily expected, a lack of fresh stimulus seems to have disappointed investors, especially coming alongside as it did a reminder that the country’s recovery is in danger if Congress doesn’t pass a bipartisan spending plan. That two officials voted against Wednesday’s decision also alarmed the markets, suggesting a brewing hawk camp in an FOMC full of doves.
Regardless of the exact reason, what this equated to was a nasty fall at the start of the European session. The FTSE, still holding on above 6000, dropped 0.9% to 6025, while the DAX and CAC slumped 1% and 0.7% respectively.
The Dow Jones, meanwhile, is heading for a 300-point-plus decline when trading gets underway stateside, one that would reverse its timid attack on 28000.
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