Earlier this month, Ben Bernanke sent global investors into a frenzy when he intimated that the Fed would be scaling back its bond-buying in the foreseeable future. Some analysts, including Lance Roberts of StreetTalkLive, have speculated that the Fed's gradual withdrawal of financial support could lead to a greater-than-expected stock correction that may leave the market in a more precarious position.
On June 19, investors awaited an official statement from the Fed with bated breath. Following a two-day policy meeting, Bernanke expressed an optimistic view of the current economic climate, noting that "the committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall."
The Fed indicated that it would maintain its current rate of $85 billion per month in bond purchases as well the hold on interest rates that has been in place since 2008. But, as The New York Times noted, the overarching message of economic recovery further underscored the Fed's announced intention to gradually withdraw.
This statement has also been met with some skepticism. Morgan Stanley Chief US Economist Vincent Reinhart argued that the government body has historically been inaccurate in its recovery projections. Few seem to have taken the Fed at its word that interest rates will still be held near zero once bond purchases have started to taper.
"Fed officials have been trying to convince everyone that QE is a flexible instrument and that the onset of tapering does not convey information about the date of the first fed funds rate hike," Morgan Stanley US Chief Economist Vincent Reinhart told NYT, adding that he believed this assertion to be incorrect.
Though Reinhart presents just one opinion of the Fed's statement, stock market losses sustained in anticipation of Bernanke's announcement were not reversed in response to the remarks. In such a volatile climate, it's essential for investors to have a risk monitoring and management process in place to protect profits and limit losses, such as the service provided by SmartStops.net.
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