World markets rise on Bernanke's pledge of action
September 1, 2012, 12:04 am TWN
JACKSON HOLE, Wyoming/PARIS -- World stock markets rallied Friday after Federal Reserve Chairman Ben Bernanke signaled that the central bank would do more to stimulate the U.S. economy.
European stocks had led the way higher in the early afternoon after a European Central Bank official said the bank was getting ready to give relief to European countries struggling with high borrowing costs by buying up their bonds.
In France, the CAC-40 rose 0.7 percent to 3,404, while Germany's DAX was up 0.8 percent to 6,953 in afternoon trading. The FTSE index of British shares gained 0.1 percent to 5,727.
The euro shot up past US$1.26 at one point for the first time in over a month; by late afternoon, it was at US$1.2593.
But the real boost came after Bernanke spoke at an economic forum in Jackson Hole, Wyoming. Expectations for new stimulus had been low after an economic survey earlier in the week sounded a fairly positive note.
But Bernanke said Friday that because U.S. unemployment is so high, the Fed would do more to boost the economy, calling the recovery “far from satisfactory.''
He added that the central bank “should not rule out'' new policies to improve the job market.
From a cautious open, Wall Street shot up. The Dow Jones industrial average rose 1 percent to 13,133, while the broader Standard & Poor's index moved up 0.8 percent to 1,410.
“Bernanke left the door wide open to more QE (quantitative easing),'' said Alan Ruskin, an analyst with Deutsche Bank. “He made strong arguments for its effectiveness, went through a list of potential criticisms that were largely dismissed or characterized as containable.''
Bernanke says high U.S. unemployment is a “grave concern” and that the Federal Reserve will provide more help if the economy doesn't improve.
Bernanke stopped short of committing the Fed to any specific move, such as another round of bond purchases to lower long-term interest rates.
He noted that further action carries risks but says the Fed can manage them. The Fed “should not rule out” new policies to improve the job market, Bernanke says.
Bernanke defended Fed actions so far to stimulate the economy. He cites studies showing the Fed's first two rounds of bond purchases created at least 2 million jobs.
The Fed's policy committee decided that action “would likely be warranted fairly soon” unless it saw evidence of “a substantial and sustainable strengthening” of the economy. The comment raised expectations that the Fed could announce a move as soon as its next meeting Sept. 12-13.