Global markets continued their rally on Wednesday as Ben Bernanke, chairman of the US Federal Reserve, made clear he had no intention of cutting short his $85bn-a-month (£56bn) quantitative easing programme in the near future.
He denied his stimulus programme was causing a new bubble similar to the one experienced by the housing market ahead of the recession.
The Dow Jones industrial average was up nearly 90 points at 15,474 by mid-afternoon, while the FTSE 100 added 36.40 points to 6840.27, coming within 90 points of its all-time high achieved on 30 December 1999, at the peak of the dotcom boom.
In Europe, Germany's Dax rose 0.69% to a new high, while France's CAC climbed 0.37%.
Bernanke warned Washington's deep spending cuts were holding back the recovery. "Conditions in the job market have shown some improvement recently," he said.
"Despite this improvement, the job market remains weak overall: The unemployment rate is still well above its longer-run normal level, rates of long-term unemployment are historically high, and the labour force participation rate has continued to move down.
"Moreover, nearly 8 million people are working part time even though they would prefer full-time work."
Bernanke acknowledged that historically low interest rates and the Fed's huge government bond-buying programme had costs, but he said "a premature tightening of monetary policy could lead interest rates to rise temporarily, but also would carry a substantial risk of slowing or ending the economic recovery".
Republican congressman Kevin Brady questioned Bernanke about his exit strategy from quantitative easing. "My worry is the Fed doesn't have the prescription for what ails our economy," he said.
Bernanke acknowledged the recovery had been slow, but said it had faced "significant headwinds" including deep government spending cuts.
He said it was "not responsible to focus all of the restraint on the very near term" and urged Congress to replace some of its fiscal tightening with measures to restrain long-term healthcare and social security costs.
The Fed chairman was asked whether monetary policy might create new bubbles. Senator Pat Toomey said he was concerned about recent rises in the housing market, farmland prices and junk bonds. "I don't disagree that this is not easy," said Bernanke. "There is no risk-free strategy here."
Bernanke said he was particularly concerned about the recession's continuing impact on the long-term unemployed. In April, there were 4.4 million long-term unemployed people in the US – those jobless for 27 weeks or more – according to the Labour Department. Their share of the unemployed declined by 2.2 percentage points to 37.4%.
The levels remained a "significant concern", said Bernanke. "We are seeing evidence that employers are reluctant to look at people if they have been out of work for a long time," he said. But he said he believed it was not an "irreversible problem".
Speculation has been rising that the Fed might be preparing to taper off its bond purchases and some Fed members have called for the policy to be reassessed.
Bernanke said the Fed would consider to monitor the situation and would taper off the programme "as the economic outlook improves". But he said a wind-down would not be an "automatic, mechanistic process".
"All things considered, we still think that the Fed will begin to curb its asset purchases before the end of the year, with a complete halt sometime in the first half of next year," said Paul Ashworth, chief US economist at Capital Economics.
US stock markets surged after Bernanke's remarks, with all the major markets rising in morning trading.
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