Confusion over Fed’s intentions sparks volatile day for US stocks

Julian Harris
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SHARES in the US were sent on a rollercoaster ride yesterday as investors reacted sharply to contrasting messages emanating from the Federal Reserve.

Fed chief Ben Bernanke, giving his latest economic update to Congress, talked up the advantages of America’s ultra-loose quantitative easing programme – causing markets to jolt upwards on the expectation of more to come.

The Dow Jones industrial average climbed to 15,542 points, up one per cent on the day, on the back of his statement.

“In the current economic environment, monetary policy is providing significant benefits,” Bernanke said. “A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.”

Yet the minutes of the Fed’s latest policy meeting, released later in the day, revealed hawkish sentiments that seemed to defy Bernanke’s words and subsequently sent equities tumbling.

“A number of participants [of the Fed’s policy-setting committee] expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth,” the minutes said. The Dow ended down 0.52 per cent at 15,307.17.