Markets reassured by speech from US Fed chief Bernanke
Published 27/08/2011 | 05:00
US Federal Reserve chairman Ben Bernanke used a keynote speech yesterday to reassure markets that the global economy was not in such bad shape that it warranted immediate stimulus measures.
Markets reacted positively after the speech, delivered at a conference for central bankers at Jackson Hole in the US state of Wyoming.
"Although important problems certainly exist, the growth fundamentals of the US do not appear to have been permanently altered by the shocks of the past four years," Bernanke said in prepared comments.
He continued: "It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals."
US stocks surged after the Bernanke speech, turning around what had been a day of falling share prices.
The Standard & Poor's 500 Index was up 1.7pc at 1.30 pm in New York, after losing as much as 2pc earlier in the day.
The Stoxx Europe 600 Index lost 0.7pc, recovering from earlier falls of 2.7pc.
Yields on US Treasury bonds fell. Falls in the price of crude closed flat, having been off by 2.8pc before the speech.
Markets remained volatile following the Bernanke speech, in which he said the central bank still had tools to stimulate the economy without signalling that he would use them.
He echoed comments from dissenting members of the Federal Open Market Committee, who said data were not pointing to a recession. Investors piled into US equities, which were trading at the cheapest valuations since 2009.
"If they can stick to this and let the market find its own bottom, they will come out of this stronger," said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $340bn (€235bn).
He added: "People will start to develop some confidence that this thing can recover on its own, without Fed assistance."
Stocks initially fell after Bernanke had announced no new plan to stimulate growth.
He foreshadowed a $600bn bond-purchase programme a year ago at the same event in Jackson Hole, Wyoming, helping to stoke a 30pc surge in the S&P 500 through until April 29. The measure has retreated more than 15pc since that peak, amid concern that the economy is stalling.
Despite a boost to sentiment after the speech, earlier data had highlighted the vulnerability of the US economy The US Commerce Department said US GDP expanded at a 1pc annual rate in the second quarter, less than the 1.1pc median forecast of economists.