The so-called Bernanke "put" hasn't lost its power to lift stocks out of their doldrums. Last week, investors shuddered and the Dow plunged after minutes of the Federal Reserve's January meeting highlighted a renewed debate within the central bank as to whether its easy-money policies designed to boost the economy might pose future risks to markets. The investor takeway? The Fed might stop buying bonds to keep interest rates low earlier than expected.
But two days of testimony by Ben Bernanke before Congress put an end to those fears, at least for now. The Fed chief reiterated his belief that the economic benefits of the bond-buying program outweighed the downsides. Risks include a jump in inflation, the formation of asset bubbles and financial instability. Investors' new takeaway after his testimony ended Wednesday: The Fed isn't taking the punch bowl away anytime soon.
"The Fed minutes last week didn't say anything we didn't already know," says Carmine Grigoli, chief investment strategist at Mizuho Securities USA. "There wasn't one second last week where I thought, 'The Fed's thinking has changed.'"
The two-day rally highlights just how important the Fed's policies have been, and still are, to the stock market since the bear market low on March 9, 2009. The broad U.S. market has risen as much as 126% during this run. Bernanke, it turns out, again trumped negatives such as Italy and Washington's fiscal problems.
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