QE3: unexpected good news

Markets rally after Fed generosity.

Fed chairman Ben Bernanke. Photograph: Getty Images

Markets are performing a “Bernanke Bounce” following a cash injection from the US Federal Reserve.

The Wall Street index rose 1.6 per cent on Thursday, along with the Asia-Pacific region which rose 2.5 per cent. European markets have followed, reaching their highest point since July last year, with the UK, Germany and France all opening up today at around 1.5 per cent.

The Fed is to pump $40bn a month into the US economy in an attempt to kick-start recovery. The aim is to continue buying up mortgage debt, in order to reduce long-term borrowing costs for property buyers.

The extent of the Fed's push towards recovery has been a surprise to traders. Not only are they planning to keep going until the labour market shows "substantial" improvement, but they plan to maintain the policy after the economy recovers. This generosity has prompted a rally in commodities in particular, with copper at its highest point in the last seven months.