European markets fell on Wednesday after the US Federal Reserve lowered the country's growth expectations and recognised additional stimulus are needed to avoid a double-dip recession.
The announcement, made last night after European markets had closed, sent the FT-SE 100 down 53 points, or 1%, to 5,323 by 9:05am. Germany's DAX Index lost 1.2% to 6,211 points, while the CAC 40 fell 1.1% to 3,688 points in Paris. In Madrid, the Ibex Index lost 0.6% to 10,652.
In its statement, the Federal Open Markets Committee (FOMC) said in a statement: "The pace of recovery in output and employment has slowed in recent months," and that "the pace of economic recovery is likely to be more modest in the near term than had been anticipated."
Analysts at Barclays Capital said: "Changes to the FOMC statement indicate that the Fed has lost some confidence in the strength of the recovery."
The central bank announced it would buy government bonds, one step short of a wider quantitative easing policy expected by the market.
"The Feds decision to retain the status quo on monetary policy by reinvesting principal payments from their agency debt portfolio into Treasuries looks a little like a sop to the market that had been calling for further QE in the light of weaker than expected economic data," said Gary Jenkins, a credit analyst at Evolution Securities. "It probably buys the Fed time whilst it waits to see if there is any real clarity in the economic outlook, but that's about it. It is difficult to see why this action would lead to a significant difference in growth or employment in the short term."
