Ben Bernanke’s constant refrain through six weeks of market turmoil has been that tapering the Federal Reserve’s purchase of bonds is not the same thing as tightening monetary policy. That message seemed finally to be reflected in market moves yesterday.
The Fed chairman’s speech in Boston on Wednesday night sent equities close to all-time records. And it encouraged the bond market to price in the first rise in short-term interest rates much closer to Fed projections for the end of 2014.
“Markets were caught flat-footed and didn’t expect Mr Bernanke to sound as dovish as he did,” said Gabriel Mann, interest rates strategist at RBS. “But he, in fact, said nothing that he has not said before . . . most market participants do now see that rate rises are a thing of the future – and not the near future.”