Ben Bernanke hints that Fed plans fresh round of dollar printing

In an eagerly-awaited speech to central bankers gathered in Jackson Hole, Wyoming, Bernanke made clear that the Fed would do more to boost growth because of persistently high unemployment and an economic recovery that remains “far from satisfactory”.

He suggested that the bank may inject more money into the economy via so-called quantitative easing (QE). That would follow two previous rounds of bond purchases which Bernanke argued had created at least two million jobs.

QE has been a popular weapon in central banks’ armouries to tackle the global economic malaise.

In the UK, the total programme of asset purchases stands at £375 billion and further money printing is on the cards, possibly as early as the autumn.

However, business leaders yesterday questioned the effectiveness of QE, arguing that the Bank of England should do more to boost lending to companies.

David Kern, chief economist at the British Chambers of Commerce, renewed his call for the creation of a “fully-fledged British business bank”, saying it could do more to improve the flow of credit to businesses in the long-term.

The Fed’s QE programme has seen it buy some $2.3 trillion (£1.5tn) in bonds in two tranches. The last round of asset purchases ended last year.

Many analysts expect the US central bank to embark on a fresh round of bond buying later this year in a process referred to as QE3.

Hopes for early action rose last week when the Fed released minutes of its meeting held at the start of August. It showed that officials spoke with increased urgency about the need to provide more help for the world’s biggest economy. In New York, the Dow Jones index was up by about 1 per cent at the close of the UK market, finding additional support from news that US consumer sentiment had hit a three-month high in August. France’s Cac-40 and Germany’s Dax both made gains of more than 1 per cent, although the UK’s FTSE 100 benchmark dipped 8 points, or just over 0.1 per cent, to close at 5,711.5.

In typically coded language, Bernanke said: “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labour market conditions in a context of price stability.”

Paul Dales, an economist at Capital Economics, said: “This is another clear sign that the Fed is ready to provide more policy stimulus. And the discussion of asset purchases and communication guidance in this speech suggests that QE3 and an extension to the Fed’s zero-rate pledge… are the tools most likely to be used.”

Michael Hewson, senior market analyst, CMC Markets UK, said: “Bernanke’s speech provided nothing new in respect of the extent and timing of further QE. And so we now move on to the next piece of US data, and next week’s jobs data, and a continuation of the ‘will they, won’t they’ QE dance.”

Bank of England’s policymakers are widely expected to sit on their hands at next week’s rate-setting meeting.

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