Image by Getty Images via @daylifeFederal Reserve Chairman Ben Bernanke told lawmakers that further stimulus may be necessary if the U.S. economy fails to gain momentum in Washington Wednesday, triggering a midmorning rally that had the major averages up better than 1%.
The chairman’s remarks showed no departure from the minutes of the Federal Open Market Committee’s June meeting released Tuesday, which showed that members discussed further stimulus, but also mulled an exit strategy from the Fed’s extremely accommodative policy. That two-pronged approach – understandable given the economy’s recent slowdown – was glossed over Wednesday as the market seized on the chance of QE3 and eased the sting of recent weakness.
An hour after noon the Dow Jones industrial average was up 133 points to 12,580, the S&P 500 14 points to 1,328 and the Nasdaq 39 points to 2,821. Financial stocks were able participants in the march higher, with JPMorgan Chase and Citigroup up better than 2% apiece. The pair report earnings Thursday and Friday, respectively.
To John Richards, head of Americas strategy at RBS, QE3 is still unlikely even after a dismal June jobs report, but that can change. The economy needs “an immediate reversal in momentum,” to move further stimulus from the Fed off the table, says Richards, who still expects a more robust second half but is keeping an eye on data like gauges of manufacturing and auto production for signals on which direction the scale is tilting.
All Bernanke did Wednesday was leave the door open to the possibility of QE3, and the market responded with “so you’re saying there’s a chance.” Where have we heard that before?
