Breaking down the latest Federal Reserve report

6:20 AM, Jun 20, 2013   |    comments
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GOLDEN VALLEY, Minn. - Asian markets plummeted Thursday morning in the aftermath of the latest Federal Reserve announcement.

Fed Chairman Ben Bernanke announced Wednesday, the U.S. economy is strengthening, and the Reserve would slow their bond-buying program, eventually ending it, next year.

The Fed's purchases of treasury and mortgage bonds have helped keep long-term interest rates at record lows.

Dan Ament, Financial Advisor with Morgan Stanley in Wayzata joined KARE 11 Sunrise to talk about the market reaction, and what could be next for Chairman Bernanke.

Fed End of QE? Bernanke reaffirmed that its bond-buying process should continue to exert downside pressure to bond yields thus supporting the economic recovery. While the Fed's economic forecast indicated some mild optimism for growth, Bernanke said investors shouldn't read too much into that in terms of Fed policy. "If you draw the conclusion that I've just said that our purchases will end in the middle of next year, you've drawn the wrong conclusion, because our purchases are tied to what happens in the economy," he said.

Fed Interest Rate Policy: As part of a historic level of easing, the Fed also has kept its target funds rate near zero, where it will stay until unemployment falls to 6.5 percent and inflation rises to 2.5 percent. The jobless rate currently stands at 7.6 percent while inflation is tracking at 1.4 percent.

Fed Economic Outlook: In its economic projections, the committee modestly raised its expectations for gross domestic product growth for 2014, from 2.9 to 3.4 percent to 3.0 percent to 3.5 percent. Bernanke had never presided over an economy that grew more than 3 percent on an annualized basis. "The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall," the statement said.

Ben Bernanke Exit? Appointed as Chairman of the Federal Reserve in early 2006 President Bush. Mr. Bernanke was confirmed for a second term in January 2010. Questions now surround what will occur when his term ends in January 2014. He succeeded Alan Greenspan who served for more than 18 years during the terms of four U.S. Presidents.

Market Reaction: Reacting to the news, The DOW and S&P 500 lost more than 2.3% in trading following the announcement. Yields on U.S. Treasury bonds also rose further, with the 10 year U.S. Treasury reaching 2.32% after touching 1.63% in early May.

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