LEADING US blue-chip shares surged last night, driving the Dow Jones industrial average back above the watershed of 11,000, after the Chairman of the Federal Reserve soothed fears of aggressive increases in US interest rates.
Wall Street charged upwards after Ben Bernanke tempered hawkish comments on US inflation risks which rocked markets on June 5 with remarks suggesting a more balanced assessment of price pressures in the world’s number one economy. He said that developments over US inflation “bear watching”, emphasising the central bank’s vigilance. But he noted that the knock-on effects from record oil prices had been “relatively low”.
He added that the limited effect of dearer energy in raising future expectations of inflation among households and businesses also meant the response of interest rates “can be more limited”.
Investors seized on his remarks to the Economic Club of Chicago, and the absence of any more hawkish analysis, to pile back into US stock markets. The Dow Jones industrial average leapt by more than 200 points at one stage before closing up 198.3 points, or 1.8 per cent, at 11,015.2.
The broader-based S&P 500 gained 2.1 per cent, while the Nasdaq leapt by 2.7 per cent.
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The Fed Chairman predicted that the present high level of oil prices was likely to prove long-lasting. But he said that the negative impact on the US economy would be manageable provided prices did not see further sharp gains.