Risk Management, Trading & Portfolio Strategies

Bernanke announces continued Fed monetary support

Ben Bernanke has indicated that Fed support will continue “for the foreseeable future.”

Following a speech given in Cambridge, Massachusetts, Federal Reserve Chairman Ben Bernanke announced during a press conference that the American central bank will not withdraw any of its support programs from the market "for the foreseeable future," due to continued concerns over unemployment figures and lingering fears that once the Fed pulls back, markets will react with a resounding negativity.

During the press conference, Bernanke confirmed what the minutes of the last Federal Open Market Committee (FOMC) indicated: That Fed officials remain fiercely split over quantitative easing (QE), which involves roughly $85 billion worth of asset purchases each month. Some called for the Fed to begin winding down QE as early as this fall, but these individuals were overruled by those who see too much weakness in the American economy to risk cutting the support line too early.

"Highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy," Bernanke stated firmly. 

Some observers had speculated that Bernanke would use the Cambridge speech to press a greater case for tapering, which would essentially allow the market to operate on its own two legs in terms of liquidity and short-term credit support. Instead, Bernanke took the opportunity to shore up support for QE and to assuage fears that the Fed would make a hasty rather than a calculated exit.

At this time, it's unclear how quickly the Fed will unwind its policy instruments, which have provided unprecedented assistance to financial institutions and some large corporations. However, investors should proceed cautiously as the market processes Bernanke's message.

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