Shares soar as Fed opts to stick with stimulus

Now Reading:

Shares soar as Fed opts to stick with stimulus

Text size Aa Aa

The unexpected decision by the US Federal Reserve not to reduce its economic stimulus programme sent European share indexes soaring to multi-year highs and pushed down the value of the dollar.

The US Federal Reserve has announced that it will not be touching its stimulus measures and will continue buying bonds at a pace of 85 billion dollars a month.

Investors celebrated with a broad-based rally. As a result the index of Europe’s top companies was up over one percent by mid afternoon on Thursday. Germany’s DAX hit fresh all-time highs.

Fed Chairman Ben Bernanke cited strains in the economy and higher mortgage rates for maintaining stimulus.

He said the policymakers in the Open Market Committee were concerned a rise in borrowing costs could weigh on the economy.

Bernanke told a news conference: “With unemployment still elevated, and inflation projected to run below the committee’s longer-run objective, the committee is continuing its highly accommodative policies.

“As you know, in normal times the committee eases monetary policy by lowering its target for the short-term policy interest rate – the Federal Funds rate. However the target range for the Federal Funds rate – currently at zero to one-fourth percent – cannot be lowered meaningfully further.”

The move comes against a gloomier that expected outlook for economic growth in the US.

In fresh quarterly forecasts, the Fed cut its forecast for 2013 economic growth to a 2.0 percent to 2.3 percent range from a June estimate of 2.3 percent to 2.6 percent. The downgrade for 2014 was even sharper.