Yesterday, the U.S. Federal Reserve announced a plan to buy a further US$600 billion more in Treasury bonds. The move is intended to drive down interest rates on mortgages and other debt, and to stimulate spending and hiring.
The U.S. is still trying to combat its unemployment rate and wants to avoid a “Japan- style” deflationary environment. The inflation rate is still not in line with that the Fed considers a healthy economy. Certain analysts point to the possible long-term inflationary consequences of these stimulus measures. This is well covered in the article provided.
The Dow U.S. index did not react much immediately following the announcement. Investors had “priced in” this move for weeks, which explains the recent strong returns in financial markets.
Today however, there has been a nice increase in all global financial markets, who welcomed the news. Several indexes, including the TSX and the Dow, hit two-year highs.
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