In a reality check to the market's recent euphoria, the Fed predicts the US economy will shrink 6.5% in 2020 and unemployment will still be 9.3% at year's end
London/Sydney — World shares took their biggest tumble in five weeks on Thursday as a sobering outlook from the US Federal Reserve challenged market optimism on the global economy, while bonds rallied on bets yet more stimulus would be needed to ensure recovery.
MSCI's 49-country index of world stocks slid 0.75% in its largest daily loss in five weeks, while e-Mini futures for the S&P 500 fell 1.5% to extend the previous session's pullback on Wall Street. As a result, Fed chair Jerome Powell said he was “not even thinking about thinking about raising rates”. Instead, he emphasised recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.
Powell confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia. The risk of more Fed easing initially had the US dollar under pressure, seeing it touch a three-month low against a basket of currencies at 95.714.Market sentiment also took a hit as new coronavirus infections in the US showed a slight increase after five weeks of declines, only part of which was attributed to more testing.
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