Stocks plunged late Wednesday after the Federal Reserve announced it will sell $400 billion worth of short-maturity bonds and reinvest in bonds with maturities of six to 30 years in the coming year. The program has been commonly referred to as Operation Twist.
Despite announcing a plan trying to help ease the markets, the Dow Jones Industrial Average fell 2.49 percent to $11,124.89, the Nasdaq fell 2.01 percent to $2.538.19, and the S&P 500 fell 2.94 percent to $1,166.76.
In addition, the Fed said it will reinvest proceeds from maturing mortgage-backed securities into other mortgage-back securities, instead of purchasing treasuries. Furthermore, they indicated that benchmark federal funds rates will remain between 0 and 0.25 percent.
Analysts had been bracing for the announcement, according to The New York Times, which should have helped absorb some of the losses. However, the announcement was paired with the Fed saying that economic growth remains slow and that inflation will settle at or below levels consistent with its dual mandate.
Still, not everyone is convinced this plan is going to do much for the economy.
There is so much liquidity in the economy that additional liquidity may not do much for the economy, Sung Won Sohn, a professor of economics at California State University, told MarketWatch.
While many economists note that further fiscal stimulus may be necessary to help speed up economic growth, the appetite in Washington for approving those measures appears slim, given that Congress has turned its focus toward deficit reduction. Furthermore, Obama's recent jobs plan likely will not pass as proposed, given Republican resistance to tax increases.
Moody's lowering the debt ratings of Bank of America, Citigroup and Wells Fargo, which also contributed to stock declines. Bank of America shares fell 7.54 percent to $6.38, Citigroup shares fell 5.24 percent to $25.52 and Wells Fargo fell 3.89 percent $23.71.
One stock doing well was Hewlett-Packard, with shares rising 6.72 percent to $23.98, although the stock traded as high as $25.10 during the day. Media reports have said the board is weighing whether to oust CEO Leo Apotheker, who has been on the job less than a year.