No change at the first meeting of the US Federal Reserve for 2021 and the Joe Biden presidency with the central bank holding its key interest close to zero and its asset purchases steady as it warned the pace of recovery in the US economy was slowing.
After a two-day meeting, its first since Joe Biden replaced Donald Trump in the White House, the Federal Open Market Committee reiterated on Wednesday that it would keep buying $US120 billion of debt until “substantial further progress” had been made in the recovery, a goal it outlined at its December meeting.
Judging by the Fed’s new words about the health of the economy and stated concern about the progress of the COVID pandemic, those purchases will be in place longer than most on Wall Street had thought and interest rates won’t be changing any time soon.
The Fed’s move couldn’t halt a sell-off on Wall Street with the Dow down more than 2% and falls of more than 2.5% for both the S&P 500 and the Nasdaq as investors continued to worry about the impact of the latest wave of the pandemic and some outrageous and volatile trading by small investors in highly speculative tech stocks.
The Dow is looking at its worst day since last October and the S&P 500 and Nasdaq are not far behind.
The trading slide saw the overnight ASX futures down by 69 points at 7am – pointing to a large fall of nearly 1% at the 10 am opening of the physical market.
In fact the falls in the main indexes increased after the Fed’s statement as Boeing shares slumped and hedge funds sold shares to cover short positions in dozens of companies.
Iron ore prices edged higher, gold fell but oil firmed a little.
Yields on 10 year US bonds, the global benchmark dipped to 1.02%, down a couple of points as the Fed statement pointed to confirmation the pace of recovery in the US economy was moderating.
“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic”, the Fed said in the statement, which was released at the end of its the two-day meeting.
“The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook,” it said.
The Fed’s statement was released with Wall Street in some turmoil.
Reuters said that shares of videogame retailer GameStop Corp and movie theatre operator AMC Entertainment each more than doubled on Wednesday, continuing a torrid run higher over the past week, as amateur investors again piled into the stocks, forcing short-sellers to abandon their losing positions
“Fears are circulating that some investment funds might be quickly closing out positions as a way of shoring up their cash positions. It is early days yet but we might see selling pressure ramp up for fear there could be a stampede for the exit,” said David Madden, market analyst at CMC Markets UK.
Microsoft shares edged higher after its very good December quarterly report after trading closed on Tuesday. Apple is due to release its December quarter figures after 8 am Sydney time. They will have to be sensational to halt the sell off gathering pace on Wall Street.
