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Inside the Market Bull fodder: Bernanke not impressed by Dow’s record highs

A board on the floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average on March 5, 2013. The Dow is closing at a record, beating the previous high it set in October, 2007, before the financial crisis and the Great Recession.

Richard Drew/AP

How impressed is Ben Bernanke with the Dow Jones industrial average near record highs? Not much, it seems.

In the press conference that followed release of the Federal Reserve's monetary policy statement on Wednesday afternoon, the Fed chairman took a journalist's question on the state of the stock market – specifically (but paraphrased), whether the stock market's gains are seen as good or bad.

It is an interesting question, because the Fed's stimulus policies of ultra-low interest rates and open-ended asset purchases are widely seen as major contributors to the four-year-old bull market. The end of Fed stimulus is widely feared.

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But Mr. Bernanke gives a surprisingly bullish response (via The Wall Street Journal's live blog on the press conference): "We're not targeting asset prices. We're not measuring success in terms of the stock market."

Wow. Previous reports have suggested that Fed officials have indeed seen the rising stock market as a sign of a successful reaction to its monetary policies. Here's the Wall Street Journal in 2011, responding to the market's reaction to the second round of quantitative easing, or QE2: "In February [2011] Bernanke noted that over the course of QE2 'equity prices have risen significantly' and 'volatility in the equity market has fallen,' as signs the Fed policy was indeed aiding the economy."

In the press conference on Wednesday, Mr. Bernanke even went on to stress that, while the Dow did hit record highs in nominal terms, it did not hit record highs after taking inflation into account. That record high is apparently 15,731.54 – more than 1,200 points away. The Dow would need to rise another 8 per cent to get there.

Mr. Bernanke is not the only person to point this out. But with Mr. Bernanke on side with this what-about-inflation camp, he seems to be suggesting that the stock market's current level is not a concern in the Fed's eyes. Perhaps that's bullish.

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