A Roller Coaster Ride in Financial Markets

Aug 9, 2011 | Economics

Who needs amusement parks when you can watch the volatility that is the stock market? Just a day after the Dow Jones posted its biggest one-day loss since the financial meltdown in 2008, the Dow bounced back with a 400+ point gain. In the middle of the day, there was the much-anticipated release of the FOMC's statement, which itself contributed to the up-and-down action.

There was much speculation that the Federal Reserve would announce a stimulative policy such as another round of quantitative easing or state that it would hold the size of its balance sheet constant for an extended period. Instead, the Fed held steady on policy, but announced that it would keep interest rates at their record low through mid-2013, rather than "an extended period." If the Fed decides to pull anything else out from its toolkit, you can track it at Stimulus.org.

However, the FOMC statement also stated that the economy had been performing more poorly than they expected, even as negative factors they had seen as temporary--such as increased food and gas prices--have subsided somewhat. The pessimistic outlook sent the Dow Jones tumbling a few hundred points (it had been over 100 points, but ended up down 100 after the statement). However, markets quickly recovered to push the Dow to plus-430 for the day by the closing bell.

Financial markets clearly have become unsettled by recent fiscal and economic developments. We know one thing that would help: a clear, comprehensive debt reduction plan to guide us to fiscal sustainability.