Bernanke Tries to Instill Confidence

Last updated 3/16/2009 4:25 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

In an interview to 60 Minutes Fed Chairman Ben Bernanke forecast that US economy will begin to stabilize by the end of the year and stated that the greatest risk to the recovery was lack of political will. “The lesson of history, “ he noted, “ is  that you do not get a sustained economic recovery as long as the financial system is in crisis.”

Chairman Bernanke’s focus on repairing the financial system as the primary key to reviving the US economy suggests that the Fed will continue its monetary easing policies for the foreseeable future and most likely indicates that the upcoming FOMC meeting this Wednesday will  re-affirm  the Fed’s commitment to quantitative easing.

Additionally, comments by US Treasury Secretary Tim Geithner that US will move quickly on “legacy assets “ by creating a public/private partnership to take the toxic debt off the balance sheets of the banks, indicates that fiscal and monetary authorities are now working in concert to instill confidence in the badly battered capital markets. The message from US policy makers was generally well received by the equity markets with both Asia and Europe opening higher at the start of the week.

The return of risk appetite boosted the EUR/USD and the GBP/USD with the later taking out the 1.4100 handle in early European trade.  It is of course much too early to tell if the massive monetary and fiscal stimulus will stem the tide of losses in financial sector and stabilize the US economy, but today’s coordinated message of commitment from both Chairman Bernanke and Treasury Secretary Geithner  is the first semblance of competence from the Obama administration that has come under heavy criticism for lack of clear policy initiatives to deal with the economic crisis. If the positive mood amongst investors continues throughout the US session  1.30 in the EUR/USD and 1.4200 in the GBP/USD could fall by the wayside as risk appetite returns to the markets

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.