Market Response to the Federal Reserve Comments

On Wednesday, September 21, the Federal Reserve made several announcements following its September meeting, which on the surface appeared to be positive, but the markets globally have reacted negatively.

The Committee intends, by the end of June 2012, to purchase $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.

Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated.

The markets appear to have focused on the pessimistic view of slow growth and have turned attention to the continuing uncertainty of the outcome of the European debt crisis and the impact on the U.S. and world economies. This uncertainty will continue the pattern of risk-on risk-off trading that has contributed to the recent volatility.


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