Tuesday, August 9, 2011

Federal Reserve


U.S. stock markets rebounded strongly in Tuesday’s trading after Monday’s large losses. Prices fell sharply on key Asian markets Tuesday, while most European indexes swung from steep losses to strong gains.
Global stock markets have taken some deep losses in volatile trading since a rating agency cut the U.S. government’s credit rating one level last Friday. Concerns about political disputes over spending and the U.S. debt added to worries about the European debt crisis, and fears about the slowing global economy.
With that in mind, many investors are watching closely as top officials of the U.S. central bank gather in Washington to discuss interest rates and other economic policies.
Some economists say the Federal Reserve might try to calm markets by announcing a new effort to stimulate the U.S. economy, which is the world’s largest.
While Fed officials have not said what they might do, reports in the financial press speculate they might pledge to hold U.S. interest rates at their current ultra-low level for a long period, or begin another round of bond purchases. Two previous programs of buying up financial assets were intended to bolster the economy by cutting long-term interest rates.
U.S. President Barack Obama has called Treasury Secretary Tim Geithner to a meeting at the White House shortly after the Fed publishes their decisions.
In the meantime, investors continued to buy U.S. Treasury bonds, seeking the relative safety of government debt despite the credit rating downgrade.
Gold, a traditional safe investment in troubled times, has hit a series of record high prices. The prices of most other commodities, including oil, fell as investors appeared to expect a slowdown that would cut demand for energy and materials.
President Obama said he disagrees with the downgrade by the Standard and Poor’s rating agency. He says he hopes it will prompt lawmakers in Washington to agree on a plan to manage Washington’s debt and deficit that includes higher taxes for the wealthy and cuts in spending on social programs. Republicans immediately rejected any tax increases.
S&P Monday defended its decision, saying increasing debt levels in the United States and the inability of Congress and the president to reach political consensus for significant deficit reductions were “no longer comparable with the most highly rated governments.”
The other two major credit rating agencies – Moody’s and Fitch – have so far kept the U.S. at the highest rating.

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