Anxious world markets seek boost from Bernanke

 

Click to follow
The Independent Online

The US Federal Reserve chairman, Ben Bernanke, risks disappointing financial markets if a major policy speech today does not contain hints of additional monetary easing by the US central bank.

Mr Bernanke's annual address to the Federal Reserve Bank of Kansas economic policy symposium in Jackson Hole, Missouri, which opened last night, is being scrutinised this year as never before, but hopes that he might promise a new round of quantitative easing for the world's largest economy faded yesterday and dragged stock markets lower.

The symposium is also notable this year for the presence of two key players from outside the US: the International Monetary Fund's new managing director, Christine Lagarde, and the European Central Bank boss, Jean-Claude Trichet, who are expected to address the eurozone debt crisis that has also been weighing on markets.

The FTSE 100 closed last night down 1.4 per cent and the Dow Jones was trading down by a similar amount at lunchtime in New York, spooked by a new blow-up in interest rates on Greek government debt and a disappointing jobs report in the US.

Traders also appeared to be unwinding bets they had made earlier this week that Mr Bernanke would make an activist speech in Jackson Hole that could pump-prime markets, as he did last year when he unveiled the Fed's second round of quantitative easing (QE2). That $600bn bond-buying spree ended this June, since when economic data in the US has pointed to growing risks of a double-dip slowdown.

"Mr Bernanke is unlikely to fulfil the markets' hopes that he will pave the way for a third round of asset purchases (QE3) in his speech," Paul Dales, senior US economist at Capital Economics, said.

At its last monetary policy meeting this month the Fed promised to hold official interest rates at zero until mid-2013, a declaration that sent market interest rates tumbling to historic lows.

Comments