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Council on Foreign Relations Daily News Brief
September 19, 2013

Top of the Agenda

Top of the Agenda: Stocks Rally as Fed Delays Taper

The U.S. Federal Reserve, in a unexpected move, postponed plans to reduce its $85 billion monthly bond-buying program, and U.S. stocks responded by hitting record highs while bond yields edged lower (Reuters). The announcement was contrary to the expectations of investors and many economists, who quickly shifted attention to the new debate over when the taper will actually begin (AP). Stocks and metal prices spiked worldwide, and pressured currencies in emerging markets such as Brazil, India, and Turkey, surged after the Fed's decision (Bloomberg).

Analysis

"The economic projections accompanying the [Fed's] statement suggest a significant divergence of views about the prospects for recovery and the outlook for interest rates. It suggests little concern about a rapidly increasing balance sheet. What comes next depends on the data, a message the Fed has been sending for some time," CFR Senior Fellow Robert Kahn writes in a blog post.

"Essentially, the Fed is dealing with a reality that is well known to students of economics: financial markets can react a lot quicker than the real economy. So, while the Fed is focused on calibrating its gradual transition out of QE with economic conditions (the 'journey'), market participants are much more inclined to rush to what they deem to be the 'terminal values' (the 'destination')," writes Mohamed El-Erian in the Financial Times.

"Mr. Bernanke seems to recognize the status quo is unhealthy, yet, as the Fed noted, it's hard for the central bank to retreat as long as 'fiscal policy is restraining economic growth' — that is, as long as Congress won't do its part," the Washington Post writes in an editorial.

 

PACIFIC RIM

Abe Urges Utility to Scrap Fukushima Reactors

Japan's Prime Minister Shinzo Abe asked the Tokyo Electric Power Co. to dismantle two nuclear power reactors from the Fukushima nuclear plant that weren't damaged during the 2011 earthquake and tsunami (Kyodo). The Fukushima plant is still leaking radioactive water.

NORTH KOREA: Kim Kye-gwan, North Korea's chief nuclear negotiator, said Pyongyang is ready to resume the "six-party talks without preconditions" (Yonhap).

 

SOUTH AND CENTRAL ASIA

Afghan Politician Defects to Taliban

Qazi Abdul Hai, a former Afghan senator and district governor, has defected to the Taliban and is considered to be the highest-ranking civilian official to switch sides (BBC). Hai appeared in a video and said he saw the "corrupt face of the government" during his time in Kabul.

This CFR Backgrounder explains the origins and resiliency of the Taliban.

INDIA: The Indian government, under pressure from the Obama administration, is considering limiting the liability of foreign companies that provide nuclear power reactors in India (Hindu).

 

MIDDLE EAST

Al-Qaeda Fighters Clash With Syrian Rebels

Fighters affiliated with al-Qaeda in Iraq have launched multiple attacks against Syrian rebel positions in the northern and eastern parts of the country, and temporarily took control of Azaz, a strategic town connecting Syria's largest city Aleppo to Turkey (WSJ).

IRAN: Iran's new president, Hassan Rouhani, said his country will never develop nuclear weapons and that he has the authority to negotiate about Iran's nuclear program with the West (NBC).

 

AFRICA

Central African Republic Accused of Horrific Abuses

A coalition of rebel groups, known as Seleka, which took power in the Central African Republic in March, has killed unarmed civilians, including women and children, and destroyed homes and villages, according to Human Rights Watch (AllAfrica).

NIGERIA: A military strike on a Boko Haram camp in Nigeria killed 150 members of the outlawed militant group and sixteen soldiers (al-Jazeera).

Expert Jacob Zenn writes about the different factions that make up Boko Haram in this blog post.

 

EUROPE

Ukraine Approves EU Trade Agreement

The Ukrainian government has approved an association and trade agreement with the European Union (DeutscheWelle). Russia has been pushing the Ukraine to join its customs union with Belarus and Kazakhstan, and Moscow reacted to the Ukraine-EU talks by halting Ukrainian imports in August.

CZECH REPUBLIC: The Czech Social Democratic Party is poised to win elections next month and plans to reverse austerity measures championed by German Chancellor Angela Merkel (Bloomberg).

 

AMERICAS

U.S. Orders Review of Security Clearance Process

Defense Department officials ordered a review of security clearance procedures after it became clear that years of warning signs about the Washington Navy Yard gunman Aaron Alexis, who killed twelve people earlier this week, were ignored (WaPo).

 

 

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