Stocks Surge After Central Banks’ Action on Debt Crisis

After a long stretch of uncertainty about the European financial crisis, European central banks and the Federal Reserve have begun to take action on the matter. The central banks decreased by about half the rate at which foreign banks could borrow from their central banks. This would be akin to a decrease in the Federal Funds rate. This action was taken to increase liquidity in banks and make sure they had funds, relieving some of the mounting pressure. As a result, bond prices fell, commodity prices and financial shares increased. Stock markets rallied in response, with increases in the Dow, Bank of America shares, JPMorgan Chase, and Morgan Stanley prices. This article also mentions that interest rates are low and will remain low to stimulate investment, which is some of what we heard at the Economic Outlook Conference too.

Economists quoted in the article believe that although helpful, this action by Central Banks only targets a symptom of the Eurozone crisis, not a the root cause. I agree with this analysis. It will help relieve pressure for a small amount of time, but the crisis is much deeper than this. Eventually, European financial leaders will need to confront the Eurozone system as a whole, rather than targeting these smaller symptoms.