Bernanke quashes market hopes on more stimulus

US Federal Reserve chairman Ben Bernanke has quashed market hopes that he would use his semi-annual written testimony to Congress to signal the central banks willingness to apply more monetary stimulus.

Despite mounting evidence of a weakening economic recovery he instead chose to focus his testimony on the Fed's exit strategy from stimulus. He did concede though that the economic climate is 'unusually uncertain'.

The risk that the Fed may apply too tight monetary policy this year has caused some to question whether its actions could prevent any further rally from equity markets.

The Fed however still sees US growth accelerating from 3-3.5% this year to 3.5-4.5% next year. He argued that rising demand would offset the effects of the withdrawal of stimulus.

Bernanke did however signal that should his optimism prove unfounded - and he conceded it may well do - he would act again. He said: 'We remain prepared to take further policy actions as needed to foster a return to full utilisation of our nation's productive potential in a context of price stability.'

This was not enough for markets however with the Dow Jones sliding 1.09%, some 109 points in New York last night.

The senior US economist at Capital Economics, Paul Ashworth, said Bernanke's assessment seems to many unreasonably optimistic. 'Overall, we suspect that equity markets were looking for a bit more than Bernanke was willing to offer. The bottom line is that monetary policy isn't going to be loosened, the best that can be said is that it isn't going to be tightened fo a couple of years either.'