UK shares leap after Fed boss Bernanke unleashes QE3 to save US economy

| September 14, 2012 | 0 Comments

By
Hugo Duncan and This Is Money Reporter

16:37 EST, 13 September 2012


|

08:54 EST, 14 September 2012

Financial markets soared after the Federal Reserve launched a dramatic new rescue package for the fragile U.S. economy in a desperate bid to boost growth and reduce unemployment.

Chairman Ben Bernanke said the central bank will pump £25billion of emergency aid into the economy a month until the outlook for jobs ‘improves substantially’.

The Fed also said it would hold interest rates close to zero ‘at least through mid-2015’ having previously said there would be no rise until late 2014.

Dramatic intervention: Fed won't stop pumping money until jobs crisis is solved

Dramatic intervention: Fed won’t stop pumping money until jobs crisis is solved

The launch of a third round of quantitative easing – dubbed QE3 – prompted the FTSE 100 to soar 85.5 points to 5,905.5 by mid-afternoon, not far off the key 6,000 mark.

Traders were just as enthusiastic on the continent, sending Germany’s DAX up 95.5 points to 7,405.8 and France’s CAC 40 some 70.3 points higher to 3,572.4.

In New York, the Dow Jones surged by more than 200 points last night and then rose a further 65.7 points to 13,605.5 when Wall Street reopened today.

Todd Schoenberger, managing principal at New York broker the BlackBay Group, said: ‘This is exactly what Wall Street and, quite frankly, Main Street wanted from the Fed.’

But Kathleen Brooks, a research director at currency experts Forex.com in London, said it was ‘mildly disappointing’ as many investors were looking for a stimulus of more than £30billion a month.

‘This may not be the Fed’s big bazooka,’ she said.

The decision – just two months before the presidential elections – risks provoking a renewed backlash from Republicans who claim Bernanke’s policies threaten to ignite inflation while doing little to spur economic growth. He was dubbed ‘helicopter Ben’ after referring to helicopter drops of money to fight deflation.

The launch of QE3 underlined the Fed’s deep concerns about the state of the world’s biggest economy and came amid a global slowdown from Brazil to Europe to China.

Analysts said the Fed, which will inject the money into the economy by purchasing mortgage debt, could end up spending around £600billion if it takes two years to get unemployment down to 7 per cent.

Bernanke has described the high level of unemployment in the US as a ‘grave concern’. Last night he pledged to keep the Fed’s stimulus in place ‘for a considerable time after the economic recovery strengthens’.

The fragile state of the US economy will take centre stage at the presidential elections in November. It is seen as the biggest threat to Barack Obama’s hopes of a second term at the White House.

Economic growth has cooled in recent months and unemployment has remained stubbornly above 8pc for more than three years – the longest stretch since the Great Depression of the 1930s.

The proportion of Americans who either have a job or are looking for a job is now just 63.5 per cent – the lowest since 1981 – as increasing numbers give up hope of work.

Fighting Fed: The launch of QE3 sent shares in New York soaring to their highest level since 2007

Fighting Fed: The launch of QE3 sent shares in New York soaring to their highest level since 2007

The comments below have not been moderated.

“The Federal Reserve launched a dramatic new rescue package for the fragile US economy” – And to think that Balls and Miliband think the American way is the panacea for our financial problems!

Edward
,

Manchester, United Kingdom,
14/9/2012 15:04

Buy physical gold and silver bullion now people. Do you see what is going on with this QE3 and money printing to infinity, your stocks, savings and pensions are being destroyed!

– ebisu73, Chelyabinsk, 13/9/2012 23:08 Don’t forget the bullion dealers make a nice profit when you buy and an even better one when you sell. And, if you need to sell, there is no guarantee what price you will receive. In the past 12 months alone, the price of gold has fluctuated between around 1500 and 1800 USD per ounce, around 20%.

John S
,

Bromley, United Kingdom,
14/9/2012 15:03

SLAVES READ THISThe price of oil soared to a five-month high today as traders welcomed a dramatic new plan in the U.S. to save the economy.The Federal Reserve, America’s central bank, will pump a mammoth £25billion a month into markets by buying mortgage debt, and won’t stop until the policy shows signs of working.The Fed also said it would hold interest rates close to zero ¿at least through mid-2015¿ having previously said there would be no rise until late 2014.DRAMATIC NEW??? PLAN,SHOWS SIGNS OF WORKING HE SAYS!.

Henry
,

Reality, United Kingdom,
14/9/2012 15:02

Most people have known for aeons that the Fed. (and its mimics at the BOE) are insane, so why should its latest qe stunt surprise anyone—surely the insanity is already “in” the market; had it been a surprise gold would not have spasmed $40 higher, it would have left the roof, silver not $2, but likewise; similarly shares. This may have set up one of the biggest “sucker” rallies ever in “everything!”

john henderson
,

london,
14/9/2012 14:59

DM readers know better than than “the markets”. I don’t think so!

John S
,

Bromley, United Kingdom,
14/9/2012 14:51

How much of this is Mr Obama trying to save his presidency?

john in cheshire
,

manchester,
14/9/2012 14:51

You can’t complain about debt, whilst at every election returning a government which supports a debt-based monetary system. Under the system you keep voting for, if you pay off the debt, you remove all money from the economy.

RD66
,

The Sunshine State,
14/9/2012 14:42

They leap on news wouldn’t it be nice if they leapt on company performance.

royston amphlett
,

bournemouth, United Kingdom,
14/9/2012 14:01

Absolutely bonkers – the city spivs and politicians have seriously scr*wed us over. It is comical that this idiot thinks firing up the printing press again in anything other than a very short term fix. It’s not going to turn anything around – the Americans will NEVER be able to pay off their debts and that is even if they stopped borrowing immediately (which the cannot do). Buy some Krugerrands while they are still so reasonable – because the dollar and pound are pretty much worthless and it will only take a run on a couple of banks to expose this.

Davey
,

Scotland,
14/9/2012 13:31

Where is all this going to end, all they want to create is more debt. Debt never helps a situation and you only get deeper and deeper into it, unless by some miracle you’re going to have an increase income from somewhere. No-one has any money to spend because government take it from us and those that do have to spend are cautious. Wipe the slate clean, it seems the only way possible. Yet, our government thinks its okay to burden our students with debt, do they realise that will be taking money out of the economy in the future, how will our children save to buy a home, how will they by paying back that debt, taking money they would otherwise have to spend, be limited to putting money into savings or a pension. These people rule that rule this country are incredibly short sighted and wearing dark glasses and shielding their vision. Idiots the lot of them.

fedupukcitizen
,

essex,
14/9/2012 13:24

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