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Ben Bernanke may not signal a QE termination this time around, but could hint at a gradual phasing out of measures.

14 Jan 2013

By Rakesh Neelakandan
On Tuesday morning at 2.30 AM IST, Ben Bernanke will rise from his seat to address a gathering at University of Michigan:

“Bernanke, chairman of the Board of Governors of the Federal Reserve System, will speak at U-M as part of the Policy Talks @ the Ford School lecture series. The talk, which is free and open to the public, will take place 4-5:30 in Rackham Auditorium.” the event calendar at University of Michigan reads.

The speech addressing the public is deemed the single most important event of the day: the first address since December FOMC—Federal Open Marcket Committee-- minutes that was interpreted by the investor community as a premonition to the termination of QE measures; if not buy all, at least by some.

So, will Bernanke wave a red flag on the face of investor community signalling a termination to QE measures?

“I don't think so...as it would be a premature measure.” said Kunal Shah, Head of Commodity Research of Nirmal Bang Commodities, Bangalore.

“The unemployment is still ruling high in the US economy and the jobless claims have gone up. Inflation is at around 2%-2.5%. The factors that prompted Fed to announce QE measures are still in place.” he pointed out.

US unemployment rates have fallen below 7% even as U.S. unemployment benefits rose 4,000 to a seasonally adjusted 371,000; 7% is way too below a comfortable level.

“However, if he hints at a QE, say by December, which is highly unlikley, the markets would be concerned. But I don't think it will happen.” Kunal Shah explained.

Gradual phasing out? 

But QE measures cannot go on for ever...

“There could be a gradual phasing out of QE measures, and I expect the same to begin towards the end of this year.” said Vijayakumar, Investment Strategist at Geojit BNP Paribas.

The US bond yields climbing is a signal in this regard and the markets have already discounted the possibility. US Bond yields—a measure of risk propensity of bonds—have climbed towards 1.87%, which shows a “gradual migration from debt markets to equity markets.” Vijayakumar added.

“Nobody would end QE abruptly as it would rattle the markets.” he concluded.

So, the helicopter Ben—as Bernanke is often described—will not signal a QE termination this time around, but could hint at a gradual phasing out of measures. (rakesh@commodityonline.com)

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