Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Is the Fed confused over the future policy action?
Fri, 21 Mar Pre-Open

The US Federal reserve in its recent policy meeting once again cut its monthly bond purchases from US $65 bn to US $55 bn. Fed Chaiman Janet Yellen stressed that with the job market still weak, the Fed intends to keep short-term rates near zero for a considerable time and would raise them only gradually. And she said the Fed wouldn't be dictated solely by the unemployment rate, which she feels no longer fully captures the job market's health.

But Yellen might have confused investors when she went further, suggesting that the Fed could start raising short-term rates six months after it halts its monthly bond purchases, which most economists expect by year's end. That would mean short-term rates could rise by mid-2015. A short-term rate increase would elevate borrowing costs and could hurt stock prices.

The mixed message raises concerns of another Fed communication failure. Last year, the Fed had a tough time persuading investors it could gradually reverse quantitative easing without accelerating its first rate increase.

If investors once again start to doubt the central bank's commitment to allow inflation to reach 2% before it raises rates, there will be a fresh bout of fund-raising pain for countries like Brazil, India and Indonesia whose current accounts are in deficit. Heightened uncertainty about the timing of US rate increases could also make global markets more volatile, further slowing down investment.

The impact of this will be felt by Indian stock markets as well. What is more, massive FII outflows could have an impact on the rupee at a time when India's fiscal and current account deficit (CAD) positions are precarious. But this is only one aspect which could have a negative bearing on the markets. This is because it has its own demons in the form of slow economic growth, consumer price inflation and fiscal deficit to deal with.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Is the Fed confused over the future policy action?". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms