The Fed is cutting its current monthly purchase of $75 billion in bonds to $65 billion, saying that the underlying trend in the economy is positive and that issues in global financial markets aren't severe enough to warrant keeping bond purchases at their previous levels.
The first round of stimulus cuts in December was welcomed, as market participants took it as a sign the economy was improving. Equity markets rallied more than 1% on the day of the Fed's announcement and continued to trend higher in the days following.
The idea of less central bank stimulus had been on investors' minds since May, and the equity rally after the announcement in December proved that the market was relieved the guessing game was finally over.This time around, however, investors are unsettled that the Fed is no longer actively trying to keep financial markets afloat, and equities fell yesterday and the volatility index continued to rise. The volatility index had been increasing before the Fed meeting because of troubles in emerging markets and mixed U.S. labor data. In recent weeks, speculators have shorted currencies in some emerging markets, overwhelming central banks' efforts to prop up their currencies. That happened in Argentina. VXX data by YCharts At the time of publication, the author didn't have a position in the fund mentioned. Follow @macroinsights This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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