Market Reacts to Unexpected Ben Bernanke Announcement

Fed chairman's continued effort to boost the economy seems to have had a positive effect.
6:30 | 09/18/13

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Transcript for Market Reacts to Unexpected Ben Bernanke Announcement
This is a special group. Report from -- -- I'm -- -- are with us ABC news did. Continue the bond buying program in -- story this afternoon but first the closing bell from the -- to build on. Out and gavel it. Wednesday September 18 2013. And again that doubt seen a very big game today up a 145. Points at 151675. But the big news coming from Fed Chairman Ben Bernanke for that I wanna go to -- until -- from -- -- talk about the big meaning behind this and Mike this was a very. Unexpected message that came from the venture this afternoon about the continuation of this 85 billion dollar a month bond buying program. Yeah that's right I mean the overwhelming majority of people had expected on Wall Street. That they would at least begin slowly to reduce the amount of Bob bond purchases they do every month the betting was somewhere around I ten billion dollar cut from the 85 billion dollar pace. And in fact Bernanke said they -- decided not. To actually change their position at all mostly because economic data since the last meeting -- really since June. Has come up below expectations the Fed downgraded their growth outlook from bases and look the economy is not necessarily ready for it. And they prefer to keep the the program in place as opposed to kind of preemptively. Pull some -- -- was a big surprise obviously markets took it is good news. -- as we saw the Dow and that's the -- SP 500 obviously having a pretty strong positive reaction to that what about the dollar -- about gold what about other sectors. Well he basically saw does that dollar go down but goal commodities stocks. And bonds all increased in value and you saw treasury interest rates come down very very sharply see what happened is here. People were kind of clinching up in fear in advance of this -- or as it's called because they thought maybe it was going to. Remove some support from the bond market which would have interest rates go up even more and in fact if you listen to Bernanke during his press conference and he cited in the fact that. Somewhat higher interest rates since the spring. Has created a risk that they're recovering housing market might falter so basically it exists for sort of paradoxical situation that expectations that the Fed would change its stance. Lifted interest rates defends -- well those higher interest rates might choke off the recovery so we have to basically damp down the expectations. Four for what we're gonna do in terms of tapering so it's a bit of a circular situation. But the market's basically said look looks like status quo easy money coming into the financial markets by way defense. In -- on reduced way. And also you know perhaps a little more bolstering of the the housing and auto sectors which have been. The stronger ones in the in the economy this year. Well and now is one of the things -- -- had brought up his knowledge that the housing recovery here home but also increased confidence in Europe's economy is well. So as far as which we're talking about Mike about that kind of the cyclical thought process as investors have been reacting off to what the Fed has been saying or indicating towards really. Since those meetings backing in June. It isn't going to be a matter of what's gonna happen tomorrow then I mean -- or is there is they're good kind of steady -- of confidence -- in the markets while it. Look it took everybody by so much of a surprise it's very hard to say where expectations are going to settle out. You know you know in one way it's been very consistent message from Bernanke and the rest of the Fed officials by saying look. We're gonna do what the numbers dictate we ought to do in terms of -- proper policy we're not gonna have some preset schedule we're not going to be totally predictable and stick to some. You know some doctrinaire way of thinking about what we're gonna do months down the road we're gonna look at the numbers we want to see job growth. Wanna see unemployment come down once -- the housing market continue to recover. And so we're basically in this vigil stale so what -- one interesting side note is that. He got a question Bernanke did the press conference about -- would you only make a big policy move. And it fed meeting after which a press conference -- schedule which is basically a way of saying what you do something on October after meeting then because there is no press conference scheduled. And -- put it put on the table that they might be said look we can do something we -- to a public conference call we have to. So I do think we're still going to be on this treadmill for a little while longer when and if they're going to change policy I doubt in one month's time. The -- will be moved so much in terms of economic numbers that we do get. How much of a change so right now I think we can probably you know be comfortable that this is where we are in terms fed policy will. Perhaps the attention -- turn now to his successor when he leaves that position in January. Already tons of draw attention on that question right now of course he was asked -- question adopted city is on talk about his own plans but did say. Reasonably soon he would address it directly he had -- he's not actually announced. That he's not gonna -- -- another term but it's just assumed he won't. A lot of people after the fact that they were saying well you know what. This decision today not to do any thing. Might be -- -- and direction Janet Yellen vice chair who is now the leading candidate likely to to succeed Bernanke because she's considered to be. A little more dollars a little more inclined to wait before removing help. For the economy she's willing to tolerate some of higher inflation over time. And maybe they didn't want to necessarily start a policy that wouldn't really be the thing that the next fed chair would pursue where she and charge so. It's obviously a lot of chronology here so to speak but it does seem as if right now it's going to be -- it should happen sooner than later the president to nominate. A successor here because you really don't wanna go that far down -- the -- -- but you know or I'll tell you there's the real intentions also going to be. And that's on congress because you know Bernanke was very clear -- been for a long time essentially saying look because congress. Is it sort of obstinate and has not come to a budget deal has been restraining spending and creating a -- -- On the economy the Fed feels inclined to do that much more to kind of take up the slack -- right now we have no budget. Confident for the next fiscal year we could have a government shut down. And obviously debt ceiling debate is gonna come to -- -- -- so that's what we're going to be watching right now I think a little more than fed -- nation. Yeah that that pressure being built all coming up on that October deadline. For congress Michael let's go take a look one last look -- of how the Dow's close enough today of a 147 points almost above percent. At 151676. -- sent to -- from Yahoo! finance thanks so much appreciated. -- -- -- This has been a special. Report from me.

This transcript has been automatically generated and may not be 100% accurate.

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