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The Markets Were Cheering The Federal Reserve’s Latest Meeting – Should You Care?

The United States Federal Reserve released the minutes of its September meeting on Wednesday night. It seems that the Fed will not be making any major changes to its policies just yet.

That night, the US market cheered at the news with the S&P 500 and Dow Jones Industrial Average gaining 1.75% and 1.64% respectively. Singapore’s market had followed suit as well, with the Straits Times Index (SGX: ^STI) closing Wednesday with a 1.01% gain to 3,259 points.

Given the market’s moves following Fed policy meetings, it seems that the central bank exerts a considerable amount of influence on financial markets. But, are the Fed minutes really such important news for individual investors?

Why the Fed does matter

The U.S. Fed’s quantitative easing programme has provided a major boost for the recovery of the global economy. That boost might be too strong though, as some economists are arguing that the rise in asset prices around the world might be creating a new financial bubble. If and when the Fed stops the programme (the Fed has signalled that it would likely be ending the QE programme this month), we might see financial markets come crashing down again.

Why the Fed does not matter

However, being caught in the game of speculating on the actions of the Fed and their subsequent effects on financial markets can be a dangerous game to play.

So here’s the thing. The Federal Reserve meets almost every month. But over the longer term, stock markets will continue to trade higher or lower based on the aggregated strength of the corporations which make up the market, regardless of what the Fed does.

In fact, when Ben Bernanke, the previous chair of the Fed, decided to start tapering the central bank’s QE programme last December, the S&P 500 has since climbed by around 7%. Remember that I mentioned earlier how some economists believe that the end of the QE programme would spell trouble for the financial markets? But as we’ve seen, the steadily shrinking QE programme hasn’t wrought havoc on the US stock market.

Foolish Takeaway

We have to understand that there are things that are beyond our control in this world (like the Fed’s actions) and that it is pointless to obsess over them. What we can do is to focus on the long term potential of businesses that we are optimistic in and invest accordingly. By doing so, it’s highly likely we would be better off in the future as compared to trying to nickel and dime short-term trades on each piece of macro news.

Time is the enemy of the short term trader, but a friend to the long-term investor.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.