Ben Bernanke Calms Markets, Eases Fears of Early Fed Taper
Otani, Akane, The Christian Science Monitor
After rattling markets last month by hinting the Fed might roll back stimulus earlier than expected, Federal Reserve Chairman Ben Bernanke quieted anxieties, saying the US economy needs to be bolstered by a "highly accommodative monetary policy for the foreseeable future."
Mr. Bernanke's remarks came hours after the Fed released minutes of a June meeting where half of attendees supported halting asset purchases by the end of the year. The Fed is buying an unprecedented $85 billion in Treasury bonds and securities every month to coax economic growth, and fears that the Fed will scale back these purchases as early as September have spooked financial markets both domestically and abroad.
But speaking at a National Bureau of Economic Research conference in Cambridge, Mass., Bernanke seemed to allay investors' concerns about early tapering. Unemployment is too high and inflation is too low to do away with easy-money policies just yet, he said.
Investors sighed in relief. Global markets soared, gold prices rose, and the US dollar tumbled to its lowest index .DXY since June 25. The Dow and the S&P 500 hit record highs by midday Thursday - the Dow surged 160 points to 15,452 and the S&P 500 soared 8 points to 1,671, 1 percent past its previous all-time closing high of 1,669.
Bernanke, however, did not altogether dismiss the possibility of dialing back asset purchases. He was careful to make the distinction between the Fed's "overall accommodation" of the economy and how the Fed uses two instruments (asset purchases and interest rate policies) to support the economy.
"There is some prospective, gradual and possible change in the mix of instruments [we may use]," Bernanke said.
Overall, Bernanke said the Fed's outlook of the economy is a mixed bag -- "somewhat optimistic," but warily eyeing "significant risks."
The housing sector, a "force of major drag on the economy for many years," has become a bright spot over the past year. Automobile sales are up. And American households are reporting less debt burden, more wealth, and more optimism about the state of the economy today than in several years. …