Markets soar as Bernanke refuses to reduce asset purchases

Global markets hit record highs overnight after the US Federal Reserve surprisingly announced that it would not begin scaling back its quantitative easing programme.

Markets had expected Fed chairman Ben Bernanke to reduce the size of monthly asset purchases from its current level of $85bn (£52.7bn), with most expecting a reduction of roughly $10bn.

However, Mr Bernanke announced no changes to the policy, citing fears that the recovery in the American economy may not be sustained if asset purchases were reduced.

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A statement for the Fed stated that, while there had been signs of economic recovery in the past year “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases”.

It said the Fed would continue to monitor economic data but would continue its asset purchases “until the outlook for the labour market has improved substantially in a context of price stability”.

The cautious outlook for the US recovery was demonstrated by the Fed’s economic projections, which reduced the expectations for US economic growth in 2013 from the previous expectation of between 2.3 per cent to 2.6 per cent growth down to between 2 per cent and 2.3 per cent.

However, the market reacted positively to the prospect of continued asset purchases and overnight the three main US indices, the S&P 500, the Dow Jones Industrial Average and the Nasdaq all hit record highs.

Asian and European equity markets have also been given a boost, with the FTSE 100 currently up by 1.3 per cent, led by gold mining firm Randgold Resources, boosted by the outlook for the gold price if more asset purchases leads, as it is expected to do, to higher inflation.

The one Federal Open Market Committee member to vote against the continuation of quantitative easing was Esther George, president of the Federal Reserve Bank of Kansas City, who cited concerns about the impacts of the programme on long-term inflation as her reason for voting against the policy.