InvestmentsMay 22 2013

Bernanke hints of QE exit but stays dovish for now

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ByEleanor Lawrie

Markets have surged on signs that the US Federal Reserve will not exit its programme of quantitative easing (QE) early in spite of the strengthening US economy.

Markets soared on the release of the Federal Open Market Committee minutes that stated the body would “provide policy accommodation as needed to foster maximum employment and price stability”.

But in his qualifying remarks, chairman Ben Bernanke told Congress that the Fed “will gradually reduce the flow of purchases,” depending on the strength of economic data and inflation levels.

“We are looking at whether or not we have seen real and sustainable progress in the labour market outlook,” he said.

“If we see continued improvement then in the next few meetings we could take a step down in the pace of purchases.

“We are not aiming towards a complete wind down, but looking to see how the economy evolves,” Mr Bernanke said.

But Ishaq Siddiqi, market strategist at ETX Capital, said the comments were too vague to be taken as signs of a strategy change.

“The Fed is not ready to take off the stabilising wheels just yet but it has in mind a way to do it,” Mr Siddiqi said.

“Bernanke has almost given his approval of QE for now and said that this is something we are monitoring and will unwind when the US is on a path to self-sustaining recovery.

“Since quantitative easing was introduced, it has made the environment a lot more favourable and now we are seeing investors piling into riskier assets.”

The FTSE 100 surged to 6,860 points in afternoon trading following Mr Bernanke’s remarks, closing in on its 1999 all-time highs of 6.950.6 points.

The S&P 500 index of US shares continued rallies that began in the run up to the testimony.