FTSE rises on Bernanke, Bush expectations

Source: Stock Market Digital

Date :31/08/2007 15:58:52

The FTSE 100 index gained a modest half a percent on Friday ahead of projected statements by the US Federal Reserve Chairman Ben Bernanke and President Bush.

Bernanke delivered his prepared speech on housing and monetary policy at 15.00 BST, and the President was due 90 minutes later to speak about ‘homeowner financing’. Both will be closely watched by financial markets, which are already expecting the US central bank to cut interest rates by at least a quarter percentage point at its Sept. 18 meeting.

In the event Bernanke said the central bank is closely watching economic developments to see if carnage in the financial markets is having a major impact on the overall economy — and that it stands ready to cut interest rates if it does. He did not focus on inflation, which has been the Fed's chief concern, in his keynote speech at the Fed's annual symposium at Jackson Hole, Wyoming.

"It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions," said Bernanke in his first public speech since credit and mortgage markets began freezing up earlier this month.

But he added that "developments in financial markets can have broad economic effects felt by many outside the markets," and the Federal Reserve must take those into account when making policy decisions.

The speech from Bush, due at 16.10 BST has already been leaked by The Washington Post and The Wall Street Journal, which quote senior administration officials. Apparently the plan proposed by Bush will allow the Federal Housing Administration to change its mortgage insurance programme to permit more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages.

Such a change would allow 80,000 more homeowners in 2008 to receive federally insured mortgages on top of the 160,000 projected to use the insurance, both newspapers reported. President Bush is also expected to discuss ways to prevent such a crisis in the mortgage market happening in the future. This is likely to include highlighting the need for strong enforcement of laws that prevent irresponsible lending.