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European markets surge in reaction to the Fed's decision

Federal Reserve Chairman Ben Bernanke speaks during a news conference at the Federal Reserve, September 18, 2013 in Washington, DC. Chairman Bernanke announced on Wednesday that it will continue buying bonds at $85 billion a month.

European stock markets are jumping for joy, surging by more than 1 percent this morning. It’s thanks to the Federal Reserve. Investors have been cheered on by the Fed's announcement that it was not going to start tapering or reducing its monetary stimulus yet.

There had been a widespread expectation that the Fed would cut its bond purchases by at least $10 billion a month. The fact that the bond purchases will go on as before and the flood of cheap money will continue has buoyed up stocks and bonds.  

But some financial analysts are not celebrating the extension of this level of stimulus.    

“Where do you stop?”  asks independent commentater Howard Wheeldon. “Do we reach a period where it’s impossible to stop it and it goes on  permanently? I think that would be dangerous.”

The fear is that the continued stimulus will inflate another bubble in the price of houses  and shares. Allister Heath, editor of the financial website City A.M., says the Fed’s decision could lead eventually to a catastrophic implosion that would make the crisis of 2007 and 2008 look like a blip. 

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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