News Column

Can Bernanke Keep the Stock Market Happy?

March 20, 2013
Ben Bernanke

If Mr. Market was on Facebook, it would most certainly "friend" Federal Reserve Chairman Ben Bernanke.

And why not? Bernanke, called "The Ben Master" by Bank of America Merrill Lynch chief investment strategist Michael Hartnett in a research note Tuesday, has been a true friend of the stock market since the 2008-09 financial crisis. Bernanke's easy-money policies, including keeping short-term interest rates near 0% and buying U.S. bonds and mortgaged-backed securities to keep borrowing rates low and the economic recovery going, have been a big driver of stock prices the past four years.

When Bernanke and the Fed end their two-day meeting today, and the Fed chief speaks at his press conference, investors will be sifting through his words for clues about the Fed's "exit strategy." Wall Street expects the Fed chief to acknowledge the economy is perking up and unemployment is edging down, but they don't expect Bernanke to start reducing the size of the monthly asset purchases, known as quantitative easing, or QE, just yet, Paul Dales of Capital Economics said in a note Tuesday.

BofA's Hartnett sums up investors' feelings about the Fed: "QE has brought peace to the financial world. Investors say liquidity conditions are the best ever. Few see the peace ending." When BofA asked investors how the Fed will exit QE3, just 3% said they expect the Fed to sell all its mortgage-backed bonds; 34% expect some sales; 42% believe the Fed will hold the bonds to maturity.



Source: Copyright USA TODAY 2013