A Wall Street sign is seen outside the New York Stock Exchange March 21, 2007. Stocks ended sharply higher on Wednesday after investors interpreted the Federal Reserve's latest policy statement as leading to a rate cut. The three major indexes each ended up more than 1 percent. REUTERS/Brendan McDermid (UNITED STATES)BRENDAN MCDERMID/Reuters
Markets were jolted after the Federal Reserve released the minutes from its last monetary policy meeting, in March, with no indication that another round of stimulus is in the works.
The Dow Jones industrial average sustained a 70-point freefall after the minutes were released, taking it down more than 100 points for the day. Bond yields shot up: The yield on the 10-year U.S. Treasury bond was recently spotted at 2.255 per cent, up 7.2 basis points.
Gold is also taking it on the chin. After a relatively calm start to the day, it fell to $1,644 (U.S.) an ounce after the Fed minutes were released, down $33.
The reaction followed Fed minutes that continued to downplay some of the apparent improvements made by the U.S. economy recently, but saw no need for additional stimulus – such as another round of quantitative easing – unless economic conditions took a turn for the worse.
As Bloomberg News picked out from the text: "A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below" 2 per cent. Some investors had clearly been hoping that the case for more stimulus would not require such a high bar.
From Peter Buchanan, CIBC World Markets: "On policy front, the statement offers little concrete evidence that further easing is in the cards for now, which could disappoint some market participants. In particular, the number of members supporting additional accommodation has apparently declined from 'a few' back in the prior minutes to only 'a couple.'"
David Berman