Wednesday, May 22, 2013

Mr. Bernanke goes to Washington. Will he talk the talk?

All eyes and ears will be on the answers that Mr. Bernanke, the US Federal Reserve chairman, gives in Congress later in the global day today (Wed May 22nd). What is at stake is the fate of the US dollar, as keen interest exists in the matter of the possible phasing out of Quantitative Easing. Any hint that the aggressively accommodative stance of recent times is coming to an end will cause the greenback to accelerate its rise.

A kite was flown last week in the form of a Wall Street Journal article that raised the strong possibility that QE might be coming to an end. However, speeches from the leaders of two regional Federal Reserve presidents yesterday and the day before, William Dudley from New York and James Bullard from St. Louis, have given the impression that it is not going away anytime soon.

This is to be expected. Even if the FED is considering the future of stimulus in the form of bond buying or other measures, its members will be very careful to ensure that this tendency does not cause volatility in the currency markets.

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