The reaction on Wall Street reinforced how sensitive investors have become to Bernanke’s remarks — and how dependent the markets may have become on the Fed’s policies.
Analysts said that in recent months, investors began worrying that the Fed might finally begin winding down its policy of large bond purchases, designed to drive down interest rates and encourage spending.
Bernanke said Wednesday evening in Cambridge, Mass., that “highly accommodative monetary policy for the foreseeable future” was necessary for the U.S. economy.
Philip Orlando, chief equity strategist at Federated Investors in New York, said this was no different from what Bernanke has been saying all along: that the Fed would make a decision based on data. But Orlando said investors probably misread the central bank earlier this year by assuming the Fed was imminently pulling back its bond-buying program.
“The market had the perception that Bernanke was going to be the waiter at their banquet and he was going to yank out the tablecloth regardless of whether they were done eating,” Orlando said. “Last night, he said very clearly, ‘I will yank out the tablecloth. But if you’re still in the middle of your dinner, the tablecloth remains.’ ”
Also on Thursday, new numbers showed that U.S. jobless claims last week rose 16,000, to 360,000. The reaction on Wall Street was muted, with analysts saying the report was consistent with the labor market’s slow recovery. The Labor Department last week said that 195,000 jobs were added in June.
Stock markets around the world also jumped Thursday following Bernanke’s remarks.
In Asia, the Shanghai Composite Index rose 3.2 percent, Hong Kong’s Hang Seng jumped 2.6 percent, and Tokyo’s Nikkei rose 0.4 percent. In Europe, Germany’s DAX was up 1.1 percent, and Britan’s FTSE increased 0.6 percent.
Investors have struggled to interpret what the Fed might do next.
Minutes from the Fed’s June meeting released Wednesday showed the group was somewhat split on how to proceed. “Several members” thought a reduction in the Fed’s policy, known as quantitative easing, would “likely soon be warranted,” according to the minutes. These members cited an improving labor market as a reason it would now be safer for the Fed to pull back.
Others, though, said they needed to see more evidence of an economy picking up steam before withdrawing the bond purchases.