The much awaited decision from the side of the Federal Reserve has been out finally, where the FOMC members under the Chairman Ben Bernanke, decided to taper the quantitative easing plan by $5 billion. This means that the bond buying plan would be reduced from a record $80 billion per month down to $75 billion, which would be applicable from the month of January 2014.
The main motive behind going for this reduction in the stimulus plan was the strengthening labor market where enough jobs have been added constantly for the past several months, hence bringing the unemployment rate down to 7%. Moreover, the consumer sentiment in the market is also satisfactory as of now where the returns are notable from investments – be they are in the equity market or other futures market or commodity market.
The impact on the stock market was drastic where Wall Street experienced a sudden decline during the meeting minutes, but then gained massively where the SP 500 index soared above the 1800 level up from 1775 area. Moreover, the Dow Jones index witnessed a jump by 170 points which is around a 1.8% gain recorded yesterday. Along with that, the Asian stocks also gained sharply where it became easier for the Asian traders to follow what happened last night with Wall Street.
You must be wondering why the stock market indices gained rather than plunging badly; aren’t you? Well, the FED plays it wisely that ensures that the markets remain in their favor first of all. The meeting minutes also raised a crucial point that the monetary policy makers would be keeping the interest rates near the zero level which means that the interest rate would remain at 0.25%. This statement gave a hint to the investors that the FED still wants the USD to remain lower in its value, which means confidence in the equity market would still be there that in turn would allow the stock market to keep itself in a stable and healthy state, while allowing the organizations to borrow and invest at a lower cost hence increasing employment opportunities and diversifying their businesses.
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