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May 21, 2013, 01.29 PM IST | Source: CNBC-TV18

Bernanke unlikely to upset mkts; may not cut QE3: AMP Cap

Shane Oliver of AMP Capital Investors thinks that US Federal Reserve Chairman Ben Bernanke is unlikely to upset the financial markets as that will undo a lot of good work done by him over the last year in terms of trying to push those markets higher as aid to the US economy

Shane Oliver

Head Investment Strategy, AMP Capital

Expertise : Equity - Fundamental

More about the Expert...

Shane Oliver, AMP Capital Investors feels US Federal chairman Bernanke is unlikely to upset the financial markets in Wednesday's meet. 

“Bernanke will not upset financial markets because it will undo a lot of good work that was done over the last year in terms of trying to push those markets higher as aid to the US economy,” he says in an interview to CNBC-TV18. 

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Oliver says, although Bernanke is bit comfortable about the US economy and jobs market, he is a little nervous about the market trends. He feels Bernanke would want to project some confidence but won't go to the extent of scaling down third round of quantitative easing (QE3).

Ben Bernanke will testify in front of the Joint Economic Committee on Wednesday to give an update on the latest outlook for the world's biggest economy and largest oil consuming nation.

Meanwhile, Oliver feels that the QE3 will taper down only when the US economy strengthens.

Below is the verbatim transcript of Shane Oliver’s interview on CNBC-TV18

Q: What will happen later this evening? Will Ben Bernanke say something that will shock the market or will it be one of those easing statements that will give the market belief that liquidity is here to stay?

A: I think, more likely the later. Ben Bernanke will not upset financial markets because it will undo a lot of the good work that he has done over the last year in terms of trying to push those markets higher as an aid to the US economy. Ben Bernanke is a little more comfortable about the US economy, the jobs market, the latest figures look a bit better. But, like the Fed president of Chicago, Evans said overnight that he is still feeling a bit nervous about things. We have seen this pattern in the past where the data looks good for the first three months of the year and then tails off a little bit. So, Bernanke would want to project some confidence but not so much that it looks like QE3 is about to start tapering off.

Q: Even the people who believe that eventually a tapering off might happen, they believe it may happen towards the end of the calendar year, not immediately. In that sense, do you think global markets have breathing space for the next five-six months before any such event comes to the fore?

A: They do, although as we get closer towards the end of the year, markets will start to focus on it more. The key here is that when QE3 starts to taper off or gets on way down or even starts to come to an end, it will only be because the US economy is stronger.

In 2010, QE1 ended in March, 2011 where QE2 ended in June and then the Operation Twist which ended in the first half of last year. After all those monetary easing sort of came to an end, markets did fall. That experience largely reflected the fact that when the monetary easing ended, it ended too early. It ended almost arbitrarily before the US economy was onto a sustainable footing.

This time around, when the end comes, it will only be because the US economy is more sustainable. Therefore, one have as big negative impact as was seen in 2010 or 2011. It is something that can cause volatility in markets but I don’t think it is going to cause the setbacks that we saw two-three years ago.

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