FTSE plunges 2% points after Bernanke points to QE’s end

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The FTSE 100 has plunged by more than 2 per cent in early trading, joining other global markets in falling after Ben Bernanke said the Federal Reserve could start to slow quantitative easing later in the year.

Speaking last night, the Fed’s chairman said it would be “appropriate to moderate the monthly pace of purchases later this year” if the US economy continues to grow as expected. The central bank will maintain its bond-buying programme at its current $85bn a month for now, but it is likely to start to taper this later in 2013 and bring it to a complete halt in 2014.

As of 1006 BST, the FTSE 100 had dropped 140.05 points to 6,208.77. The fall was led by stocks from the mining and financials sectors.

In Europe, the Eurostoxx 50 was down 57.40 points, while the German Dax 30 dropped 182.47 and the French Cac 40 fell 80.65. Overnight, the S&P 500 shed 1.39 per cent and the Nikkei 225 lost 1.74 per cent.

The Fed’s Federal Open Market Committee forecasted “moderate” economic growth, continued improvements in unemployment and inflation moving toward the Fed’s 2 per cent goal in its latest outlook.

Bernanke said: “If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year.”

Should these gains continue, “we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year,” Bernanke added.

The Fed has previously suggested it would maintain its QE programme and keep interest rates low as long as US unemployment remains above 6.5 per cent. Last night, Bernanke said bond buying would likely continue until the unemployment rate was in “the vicinity of 7 per cent, with solid economic growth supporting further job gains”.

Bernanke added: “Our policy is in no way predetermined and will depend on the incoming data and the outlook.”

Brown Advisory fixed income portfolio manager Thomas Graff says: “There is no doubt that Bernanke is walking a very thin line and the language in which he communicates changes to monetary policy is crucial as it will set up trading patterns for the whole summer.”