Tokyo International - Investors Await Federal Reserve Chairman, Ben Bernanke's Next Step

Online, August 14, 2013 (Newswire.com) - Tokyo International: Federal Reserve Chairman, Ben Bernanke, will be far more circumspect in his use of language today and tomorrow during what could be his last testimony to a house panel on Capitol Hill according to analysts at boutique investment house, Tokyo International.

In his remarks, prepared for delivery to the House Financial Services Committee, Bernanke reiterated earlier guidance that the economy will likely allow the Fed to pull back on the asset purchases later this year and end them altogether around midyear 2014.

The Fed has signalled it will slow down the money printing if the US economy continues to recover, and that has spurred the greenback to rally over recent months.

Mr. Bernanke has been the subject of conjecture over how long he will remain at the head of the world's most powerful central bank. Since Bernanke in late May started talking about the prospect of tapering the central bank's asset purchases, markets have been closely scrutinizing hints of when a reduction may set in.

It seems that Bernanke has been delivering the same message since at least mid-June. He offers an "if this then that" type of guidance. Depending on investor positioning, the market has swung between focusing on the antecedent or the consequent.

The antecedent, which investors have focused on more recently, are the conditions that Bernanke has said would be consistent with tapering: If the economy does not disappoint Fed expectations. The consequent is the tapering later this year and possibly ending the program around the middle of next year, when, incidentally, Bernanke will most likely not be there.

"The last two occasions upon which the Chairman has spoken, markets have responded with sharp falls or rises. We think he'll want to avoid knee jerk market reactions and, consequently, will choose his words very carefully", said an Tokyo International market analyst.

Many investors remain undecided upon the issue of when the Federal Reserve will begin scaling back its purchases of US treasuries and mortgage backed securities and continue to look for guidance from the central bank and, as a result, markets seem to be range-bound.

"With each passing week, it's looking as though the role of the central banks in the global financial markets has become too high-profile. Markets drift aimlessly and hang on every word that central bank governors say, said the Tokyo International analyst.

"Sooner or later, investors are going to find out the hard way why central banks really ought to be seen and not heard," he concluded.