The Dow Jones Industrial average plunged a combined 550 points Wednesday and Thursday, erasing over $120 billion of investor capital.
Federal Reserve Chairman Ben Bernanke sent stocks on a nosedive when he signaled that the Fed’s days of unprecedented printing of trillions of dollars and near-zero interest rates may be nearing an end by the middle of next year. Worries over China’s economy also accelerated the sell-off.
On Thursday, the Dow dropped 350 points, resulting in the worst decline of the year. The sell-off began on Wednesday amid Bernanke’s comments.
Dallas Fed President Richard Fisher previously warned that the Fed’s unprecedented $85 billion-a-month bond buying has the market “hooked on the drug” of easy money and that the withdrawal symptoms would only get worse as the government buys up more debt.
Prudential Financial market strategist Quincy Krosby told NBC that ending the Fed’s so-called “quantitative easing” will not spell doom for the market but will create some bumps along the way as the market learns to break the Fed’s easy money addiction.
“We haven’t had a meaningful correction in the market and if this selloff continues…it doesn’t mean the market is going to collapse; it is essentially recalibrating–the road to normal is going to be filled with detours,” said Krosby.
Under Obama, the Federal Reserve has expanded its balance sheet to an unprecedented $3.41 trillion.