Bernanke delays decision on QE3

Federal Reserve Board Chairman Ben Bernanke has signalled that there will be no Quantitative Easing until next month’s Federal Open Market Committee meeting, which has been extened to two days.

Markets have been anticipating Bernanke’s speech all day and many traders were expecting some discussion of further easing. But Bernanke has declined them, saying that now is not the time for these issues as the summer’s economic storms continue to blow across the globe and their effects on America remain unclear. His comments came soon after the news that American growth is being downgraded to 1 per cent this year, further hitting the markets’ confidence.

There are those who wanted decisive action on QE3 today and it is telling that the markets suffered sharp losses as Bernanke ruled out such an eventuality. In today’s FT, Professor Michael Woodfood argues that Bernanke needs to clarify his policy and ‘sink QE3’. Further stimulus would only have a very limited effect, he says, and merely give “policymakers an excuse to avoid taking actions that would do more to help the economy.