Bernanke Threatens Extension of QE past $600 Billion
Bernanke the chairman of the federal reserve has said today that the US might need to extend bond purchases past the the $600 billion announced last month to spur on economic growth. The argument for this extension is based upon fears that the US economy is expanding at a bairly sustainable pace and ongoing fears that the employment sector is still faltering after Non Farms last week. The unemployment rate last month rose to 9.8 percent and surprised the markets after a previous string of positive news, this is the highest level since April and has dampened economic sentiment significantly.
Bernanke appeared on CBS Corpâ€™s ’60 Minutes’ program and defended the Fedâ€™s efforts to prop up the US recovery. He argued thatthe economy was clearly still very weak and that just 39,000 jobs were created in November. He stated that the potential for the purchase of more bonds than previously planned last month is â€œcertainly possible,â€; dependant on the outlook for inflation and the US economy over the coming months. Bernanke went on to say that although growth looks set to continue at a slow pace, a return to recession ‘seems unlikely’.
The Fedâ€™s decision to undertake a new bond purchasing program, known as quantitative easing, has been criticized heavily by the worlds finance officials, amidst fears of a global currency war and competitive devaluation. Policy makers in emerging markets have expressed concern that this kind of devaluation could drive down the dollar and cause a re-surgence of capital abroad.
Today has been a relatively quiet day in the currency markets. The week ahead is likely to continue to be dominated by the European sovereign debt crisis. The much awaited budget for 2011 will be a key release for the Euro tomorrow as traders speculate on the austerity measures set to reign in â‚¬6bln (3.7%) of GDP. Two thirds of the planned austerity will come from spending cuts with one third from higher taxes.
Tomorrow also sees the UK release of retail sales and the NIESR GDP estimate. These economic figures will be influential for the day as markets expect a positive figure ahead of the festive period.
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