Bernanke Sneezes, Global Markets Catch a Cold

Stocks worldwide fell after Federal Reserve Chairman Ben S. Bernanke’s June 19 statement on U.S. monetary policy. Emerging markets were hit especially hard. The statement, and Bernanke’s comments afterward, shouldn’t have come as a surprise -- so what’s going on? Was the sell-off a meaningless overreaction, or a warning of new financial stresses ahead?

A bit of both. Bernanke said the Fed’s program of quantitative easing would be reduced over the next year or so, and probably ended in 2014 -- so long as the economy continued to strengthen as the Fed expects. He also reiterated his plan to keep short-term interest rates on the floor for longer than that. Again, none of this was unexpected. It would have been shocking if he’d said anything else.