Federal Reserve’s economic aid announcement: How did stocks react?

The United States Federal Reserve announced that it would start rolling back financial benefits offered through the COVID-19 pandemic and the country’s stock market seemed to benefit from it, at least so far.

Major stock indexes on Wall Street, which seemed to experience a slump early in the day, shrugged off the downward trend notched more record highs on Wednesday after the crucial announcement.

All three indices set their individual record closing highs a day earlier. On Wednesday, Dow Jones Industrial Average added 0.3% while the S&P 500 bumped by 0.6%. Both indexes marked their fifth consecutive gain.

NASDAQ, on the other hand, showed even greater gains. The tech-rich index climbed 1%, extending its winning streak to an eighth day.

In a statement released at 2 p.m. Eastern, the Fed said it will begin reducing its $120 billion in monthly bond purchases in the coming weeks by $15 billion a month. If that pace is maintained, the Fed could be done winding down its bond purchases as early as June.

Also Read: G-20 endorses global corporate minimum tax at Rome summit

At that point, the Federal Reserve could decide to begin raising its key short-term interest rate, which affects many consumer and business loans.  

Chief investment officer for Independent Advisor Alliance said in a statement, “Much of the bond tapering announcement was already priced into markets and should not have come as a surprise to anyone that was paying attention to what the Fed has been indicating for most of this year”, according to reports from Associated Press.

He added, “But the markets are already turning their attention to how soon the Fed will begin raising interest rates and how quickly they will raise them.”

The Federal Reserve’s latest statement and policy shift comes amid persistent rising inflation that has cut into corporate operations and raised prices on raw materials. It is also making finished goods more expensive, raising concerns about whether consumers will cut back on spending as prices rise.

(With AP inputs)