World stock markets stabilize after reacting poorly to Federal Reserve's policies
6/22/2013 9:58:19 AM

World markets took a tumble following Federal Reserve Chairman Ben Bernanke's statement Wednesday that the Fed's economic stimulus would probably wind down this year and end in 2014, contingent upon economic gains.

Growing concern over China's economy also contributed to the global selling spree, with the Dow Jones industrial average losing 353 points Thursday. The Associated Press noted that bond prices also fell.

Bernanke's announcement Wednesday was in anticipation of the economy continuing to improve through the rest of 2013. The Fed said it would not make immediate changes to its $85 billion-a-month bond purchasing program, but the policy might change if economic gains continue in the fall.

The bond-buying program, known as "quantitative easing," along with low short-term interest rates, were part of the Fed's policies to stimulate the economy in the wake of the financial crisis of 2008 and 2009. The policies made money and credit more readily available to businesses and consumers.

"People are worried about higher interest rates," Robert Pavlik, chief market strategist at Banyan Partners, told the AP. "Higher rates have the ability to cut across all sectors of the economy."

Investors are also worried about China amid signs that its economic growth may be slowing.

Reports that Chinese banks had become reluctant to lend to one another might have contributed to the declines seen Thursday.

The Wall Street Journal reported Friday that the People's Bank of China may have asked state lenders to release more money to ease the liquidity crisis. As of Friday, the Shanghai Composite Index narrowed some of its losses, but was still down 4.1 percent for the week.

However, The New York Times suggested that Thursday's rattled markets should be blamed on the Fed's announcement, citing traders and investors.

"When the US embarks upon policies that are appropriate for its own domestic circumstances, it can impose policies on the rest of the world that aren’t necessarily appropriate to them," Darren Williams, the senior European economist at AllianceBernstein, told The Times.