Global equity markets could heave a sigh of relief for now. The liquidity wave will run the course he has presaged.
Ben Bernanke, chairman of the US Federal Reserve, reiterated his dovish stance towards easy money in his semi-annual monetary policy report to the House Financial Services Committee on Wednesday.
As a result, the global markets were trading in positive territory with US markets up nearly 0.5% and European markets too gaining 0.5% to 0.7%. The SGX Nifty was trading at 6018, up 44 points over previous close.
The Fed chairman highlighted that the risks to economic growth persist as the unemployment levels are still high and declining only gradually, and inflation too is running below the committee’s longer-run objective. Therefore, a highly accommodative monetary policy will remain appropriate for the foreseeable future.
“Though the conditions in labour market are improving, the jobs situation is far from satisfactory, as the unemployment rate remains well above its longer-run normal level, and rates of underemployment and long-term unemployment are still much too high,” he said.
He further said though risks to the economy have diminished since the fall, the risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than expected currently.
“The economy remains vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated,” he added.
The Fed chairman appeared dovish regarding the timing of tapering the on-going bond buying programme (quantitative easing or QE) as well.
“The committee’s decisions regarding the asset purchase programme (and the overall stance of monetary policy) depend on our assessment of the economic outlook and of the cumulative progress toward our objectives. I emphasise that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course,” said Bernanke.
This statement comes after the hawkish statement he made in June. Fed committee in June policy meet had indicated that if the subsequent data continued to confirm the pattern of ongoing economic improvement and normalising inflation, they would start to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear.
V K Sharma, head of private broking and wealth management, HDFC Securities, believes the Indian markets may react positively on Thursday mirroring the movement in the US and other Asian markets.
“The market may open up with moderate gains. Markets as such have been trying to go up despite problems all around at home,” he said.
Sharma, however, believes it won’t be advisable to go bullish at current levels.
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