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Markets Buoyed By Bernanke Testimony

The mood in markets turned positive Wednesday after some dovish remarks from U.S. Federal Reserve chairman Ben Bernanke raised the prospect that the central bank’s monetary stimulus may stay in place a little longer than expected.

Federal Reserve Board Chairman Ben Bernanke
Federal Reserve Board Chairman Ben Bernanke (Alex Wong/Getty Images)

In prepared remarks to lawmakers in Congress, Bernanke said the Fed’s timetable for reducing its bond purchases is not on a “preset course” and that it could actually increase them if economic data disappoints. Specifically, he said the Fed wants to see substantial progress in the job market before scaling back the bond purchases.

Bernanke, who will take questions from lawmakers later, also said that the Fed’s main interest rate, the Fed funds rate, will stay at its current very low levels after the monetary stimulus comes to an end.

The Fed is currently spending $85 billion a month buying financial assets in the markets in order to lower long-term borrowing rates and shore up the U.S. recovery.

In recent weeks, the expectation had been that the Fed might start the so-called tapering in September but a recent run of uninspiring U.S. economic figures have put that assumption into question. Bernanke’s comments appeared to confirm the expectation that any change will depend on economic data and not be constrained by the calendar.

The response was relief in stock and bond markets, while the dollar fell.

“Presumably, he will remain ‘on message’ during the Q&A session, and confusion will not reign,” said Joshua Shapiro, chief U.S. economist at MFR Inc.

In Europe, the FTSE 100 index of leading British shares was up 0.4 percent at 6,584 while Germany’s DAX rose 0.6 percent to 8,248. The CAC-40 in France was 0.7 percent higher at 3,877.

Wall Street was now poised for a higher opening, with Dow futures up 0.1 percent and the broader S&P 500 futures 0.3 percent higher.

The dollar fell from earlier highs after Bernanke’s testimony. As well as boosting stock markets, the Fed’s monetary stimulus over the past few years has largely kept a lid on the dollar, so any prospect that the policy will remain intact has the potential to weigh on the currency. The euro was steady at $1.3147 while the dollar was 0.2 percent higher at 99.45 yen.

Earlier in Asia, the mood was fairly perky. China’s Shanghai Composite Index fell 1 percent to 2,044.92 while Tokyo’s Nikkei 225 gained 0.1 percent to 14,615.04. Hong Kong’s Hang Seng rose 0.3 percent to 21,371.87 and Seoul’s Kospi added 1.2 percent to 1,889.50. B

Oil prices recovered some earlier losses with the benchmark New York rate down on 27 cents at $105.73 a barrel.

 

(Copyright 2013 The Associated Press. All Rights Reserved)

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