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Three days out from his toughest test as chairman of the Federal Reserve, Ben Bernanke has refused to hint at his latest thinking on interest rates this week and kept the market guessing on the bank's likely response to the unfolding credit crisis.
Investors had hoped that a speech to a central bankers' conference in Germany earlier in the week would lead to clarity over whether the Fed would cut interest rates, and whether its first reduction in four years would be a quarter or half a percentage point.
However, markets go into next week with a feeling of uncertainty, amid conflicting signs about the severity of the credit crunch.
Bernanke's words were a disappointment to an industry trained to interpret speeches of Fed chairmen. They contrasted his speech with those of his predecessor, Alan Greenspan, who would always say something on the issues of the day.
Bernanke focused on global financial imbalances and the savings glut he attributes to increasing oil or industrial wealth in emerging countries, alluding only once to "the volatility in financial markets and investors' demands for increased compensation for risk-taking".
The Fed continues to inject cash into the financial system to ensure banks keep lending, adding a further US$3 billion ($4.2 billion), but bond markets now predict the Fed will move beyond these financial market operations with a 25 or 50 basis point cut to interest rates.
- Independent
