Shares Fall As Fed Plans To Slow Bond-Buying

Written By Unknown on Jumat, 21 Juni 2013 | 12.06

World stock markets have lost more ground after the US Federal Reserve signalled it was moving closer to slowing its bond-buying programme.

The Fed offered a more optimistic outlook for the US economy and job market but said it would maintain the pace of its bond purchases for now to support recovery.

Equity markets, which have tumbled from post-financial crisis highs in recent weeks on fears of the stimulus being withdrawn, fell further in the wake of the announcement.

The Dow Jones lost 1.3% while in London the FTSE 100 joined Asian markets in falling nearly 3% - the London market returning to levels not seen since September 2011.

The cost of government borrowing also rose in many major economies as a result of Fed Chairman Ben Bernanke's comments.

He had said the central bank could scale back its $85b (£54b) in monthly bond purchases later this year if the economy continued to improve.

Mr Bernanke likened any reduction in the Fed's bond purchases to a driver letting up on a gas pedal rather than applying the brakes.

He said the reductions would occur in "measured steps" and that the programme could end by the middle of next year.

Timothy Duy, a University of Oregon economist who tracks the Fed, called the statement "an open door for scaling back asset purchases as early as September."

The fact that the Fed foresees less downside risk to the job market "gives them a reason to pull back" on its bond purchases, Mr Duy said.

The central bank also said it would maintain its plan to keep short-term rates at record lows at least until unemployment reaches 6.5%.

Last month, the US economy added 175,000 jobs. But the unemployment rate is still high at 7.6%. Economists tend to regard the job market as healthy when unemployment is between 5% and 6%.


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