European markets feel effect of QE3 announcement

Federal Reserve Board Chairman Ben Bernanke testifies before the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill July 17, 2012 in Washington, D.C.

The Fed will spend $40 billion a month buying mortgage securities to keep interest rates down and inject liquidity into the U.S. economy. Yesterday, that news was a big help to markets here in America. Today, it seems to be giving a helping hand to Europe as well.

"September was always feared as a potential very dangerous month for the whole euro zone economy," says James Knightly, senior international economist with ING. "In the end, the ECB continues to offer support and is looking to step up its bond-buying program. And also the Dutch elections -- we've actually got a pro-EU government in. And of course, we've got this extra stimulus from the Federal Reserve."

It is fairly typical that Fed action helps boost European markets. But to what extent does it really help the economies across the pond?

"The idea is that the support to the U.S. economy helps the U.S. economy in general," Knightly explains. "Therefore they suck in more imports from around the world, and that helps to boost euro zone economic activity as well."

One downside for Europe? The potential for currency wars in the coming months.

 

 

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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