The S&P 500 deteriorated today losing over 1.0% after the Fed announced it would taper its asset purchases by another $10 billion to a $65 billion monthly pace.
FOMC Meeting Announcement
Although the Fed continued with its taper of quantitative easing, policy rates were left unchanged with the fed funds target rate at a range of 0.00-0.25%. The Fed noted that it continues to see improvement in the economy. The Fed also sounded dovish when noting that inflation has been persistently below its 2 percent objective, which could pose risks to economic performance. The fed funds target rate will likely be maintained well past the unemployment rate falls below 6.5%.
Emerging Markets Fears
China’s HSBC purchasing manager’s index fell to a 6-month low of 49.5 in January, confirming expectations of a slowdown. China’s economy should probably now be considered “emerged”. Other emerging markets are raising policy rates, which is scaring investors away. So far Turkey and South Africa have started raising their overnight borrowing rates. Brazil, Indonesia and Thailand are seen as the next emerging market candidates for a tighter policy.