Markets Fall after Fed Announcement | September 22, 2011

The Australian equity market are expected to open up lower after the US market fell on statement made by the Federal Reserve. The Fed announced yesterday said it would increase its share of longer term Treasury’s by $400 billion in an effort to make credit cheaper and encourage spending.

The drop in the US markets are a clear sign investors are questioning the effectiveness of the Federal Reserve’s latest unconventional attempt to bolster the US economy. The announced change essentially changes the makeup of the securities in the Fed’s portfolio and is designed to keep mortgage rates low. In addition, the Fed also said it would reinvest the proceeds from maturing agency debt and mortgage-backed securities into mortgage-related debt.

Although the market had largely expected the news, it was the Fed’s poor outlook on the US economy that discouraged markets. The Fed also notably darkened its view of the possible effects of the sovereign-debt crisis in Europe. Unlike last go-round, the Fed specifically cited “strains in global financial markets.”

The news from the Fed came as Greece’s cabinet considered demands for additional budget cuts to gain the release of an aid tranche needed to avoid default. The government said it made progress in two days of conference-call talks between Finance Minister Evangelos Venizelos and officials of the so-called troika of international lenders, the European Union, the European Central Bank and the International Monetary Fund. The Finance Ministry said talks would continue over the weekend in Washington, where Venizelos will attend an annual IMF meeting.

Gold eased after the Fed’s announcement, which curbed demand for the metal as a safe place to park cash. Spot gold was last quoted at $1,779.29. Gold futures slipped $16.70 (0.92%) to $1,792.40. Spot silver was last quoted at $39.56.

Crude fell in choppy trading after the Federal Reserve announced plans to boost the listless US economy by purchasing longer-dated government debt. West Texas Intermediate was last quoted at US$85.75 per barrel.

Last Traded
SPI 200 future 3980
S&P500 Index 1166.76
Dow Jones 11124.84
FTSE 100 Index 5288.41

Last Traded
Gold 1786.60
Oil (Nymex) 84.84

Last Traded
AUDUSD 1.0071
EURUSD 1.3567
GBPUSD 1.5489
USDJPY 76.61
Bloomberg, Dow Jones News