US Federal Reserve chief Ben Bernanke has said that the base interest rate there is to remain low for an extended period. According to the central bank, it is just too early in the recovery process to begin to raise rates. Not that markets were complaining – US stocks jumped by over 1% following Mr Bernanke’s comment.
Last week, the Fed took everyone by surprise by suddenly raising the discount rate (that is the rate at which banks receive emergency loans) to 0.5% from 0.75%. It wasn’t the act itself which shocked the market but the timing – it happened much sooner than expected. Consequently, US stocks had slipped as did the USD.
Meanwhile in the UK, the Bank of England has once again released a wave of uncertainty, by giving an ambiguous stance on asset-buying. Yes, they decided to finish the 200 billion pound quantitative easing programme at the last policy meeting.
But now it appears as though they are considering re-installing it if inflation doesn’t head nearer to target soon. The comment echoed a similarly downbeat tone from BoE head Mervyn King earlier in the week, and brought a weakening of the pound by almost a cent to just below $1.54 against the US dollar.
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