Stock Markets Pump as U.S. Plans Another Fed Stimulus to Support Economy

UTC by Tolu Ajiboye · 3 min read
Stock Markets Pump as U.S. Plans Another Fed Stimulus to Support Economy
Photo: Depositphotos

Another Fed stimulus package is expected as the U.S. authorities are trying to push the economy forward. Global financial markets are rising in response.

All over the world, financial markets were dealt a tough blow because of the coronavirus pandemic. Because there was not a lot of industrial or financial activity, these markets significantly suffered. Now, even as business is slowly resuming, there is some good news from the U.S. as the Federal Reserve looks to intervene. The Fed has promised a stimulus package to boost the economy.

Globally, stock markets have begun to swell on news that the Federal Reserve is planning to pump some support into the economy. Already, the agency is buying exchange-traded funds to offer support. In addition to this, the Fed stimulus will also involve purchasing corporate bonds. The agency hopes that this will not only encourage individual efforts at normalcy but will also help ease out credit. At first, it seemed the Fed stimulus was only interested in purchasing bonds from the primary market. However, these efforts will also see purchases from the secondary market. According to Evercore ISI strategist Dennis DeBusschere:

“What appears to be new is the individual buying in the secondary market and what looks like, at least from the announcement, the potential for a wider variety of purchases…The reason credit spreads are tight is because investors believe that they would follow through on the program. If they didn’t follow through, credit spreads would move significantly wider and the Fed would have to purchase even more debt to shore up credibility.”

Market Reaction to United States Fed Stimulus

In response to the news, stock markets – specifically the Dow Jones Industrial Average futures rose. On June 15, the Dow (INDEXDJX: .DJI) pointed at a rise of 450 points, for when normalcy returns to the market. Other stock market indexes, including the Nasdaq-100 (INDEXNASDAQ: NDX) and the S&P 500 (INDEXSP: .INX) both pointed to individual rises as well.

On Monday, the Dow ended at 25,763.16, over 157 points higher than its previous close at 25,605.54. The S&P 500 index also climbed 25.28 points to end at 3,066.59, with the Nasdaq closing up 137.21 from its previous 9,588.81 close. The Fed had previously pumped over $2 trillion in the heat of the coronavirus pandemic.

Further Plans

In addition, and according to a Bloomberg report, the authorities are putting together a proper proposal that should be worth $1 trillion. These funds will go to supporting regular infrastructure all over the country. Specifically, most of the funds will go to the Department of Transportation. As soon as possible, this would be used for infrastructural projects such as bridges and roads. However, authorities also plan to use some of these funds to install more rural broadband and 5G wireless equipment.

Also, the Trump administration is looking to renew an infrastructure law by September. Basically related to funding, the law is supposed to govern how the administration will fund infrastructure projects around the country. According to Bloomberg, there is a good chance that authorities will use the law as a great way to pump more funds into infrastructure.

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