Stocks Continue Selloff Following FOMC Meeting | ETF Trends

Stocks continued to slip after following the Federal Reserve meeting on Wednesday, as the S&P 500 closed on its lows after testing its recent highs from earlier this week, in a roller-coaster trading session.

Along with the rate decision, central bankers prognosticated on Wednesday that the economy will contract 6.5% in 2020, a year as a result of the shuttering of businesses for months on account of the coronavirus pandemic. However, 2021 and 2021 are predicted to be better years, expected to reveal a 5% gain followed by 3.5% in 2022, both handily better than the economy’s longer-term trend.

The central bank reiterated its commitment from the April meeting to bolster the fragile economy. The Fed noted that the coronavirus is still a threat to the economy, and therefore the fed funds rate will remain near zero for the time being.
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the statement said.

The Fed also said it will go on augmenting its bond holdings, targeting Treasury purchases at $80 billion a month, and mortgage-backed securities at $40 billion.

“To support the flow of credit to households and businesses, overcoming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate,” the statement continued.

The Federal Open Market Committee was held this week as states commenced the reopening process and following unemployment data that witnessed its worst monthly drop in history followed by its biggest gain. In addition, the meeting arrives the same week that the National Bureau of Economic Research declared that the official start to the coronavirus-stimulated recession was in February, culminating the longest expansion in U.S. history.

In comments after the release, Chairman Jerome Powell noted that the economic projections were made with the “general expectation of an economic recovery beginning in the second half of this year and lasting over the next couple of years, supported by interest rates that remain at their current level near zero.”

While many have called for negative interest rates, Powell has expressed his distaste with utilizing them, and restated the importance of maintaining the current levels.

Stocks underwent a tumultuous session following the announcement, culminating with a drop to the lows of the day, where the S&P 500 closed, losing just over 1%. The Dow Jones Industrial Average also closed down 0.53%, while the Nasdaq notched a fresh high, finishing with a 0.67% gain on the day, and preventing stocks from a greater fall.

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