After the last few days of turmoil as the markets floundered between despair and hope, the US Federal Reserve has stepped in and said that it planned to keep US interest rates at its historic low of 0-0.25% until mid 2013.
Stopping short of putting a further round of quantitative easing (so called QE3) on the table, this announcement did have the effect of boosting Wall Street somewhat.
The news also boosted Asian markets overnight, the Nikkei managed a 1.1% rise and the Hang Seng rose 2.8%.
The FTSE has now followed suit and shot up to about 5260 early in trading before dropping back to the 5200 mark, a number which may well have been considered immediately out of reach just a few days ago.
But pension funds have still been hammered by the overall fall of the markets in the last week or so with the National Association of Pension funds reporting a loss to funds of about Â£120 billion, which is some 6%-7% of assets.
Gold, which has benefited by regularly hitting new highs as the turmoil continued, did fall back as investors felt more comfortable with risk after the Fed’s announcement.
The Federal Open Market Committee said “Indicators suggest a deterioration in overall labor market conditions in recent months. Household spending has flattened out, investment in nonresidential structures is still weak and the housing sector remains depressed.”
Not good signs, but the markets have responded positively (so far) to the certainty over interest rates.
This though was not a unanimous opinion of the Fed board. There were unusually three dissenting voices out of the twelve members, the most since 1992. The dissenters did not want to put a time frame as to how long the rates would be held down.