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Has Bernanke perfected balance between hawks and doves?

Thursday, 18 Jul 2013 | 12:10 AM ET
Ben Bernanke, chairman of the U.S. Federal Reserve
Pete Marovich | Bloomberg | Getty Images
Ben Bernanke, chairman of the U.S. Federal Reserve

In delivering a testimony that didn't rattle markets for a change, Federal Reserve Chairman Ben Bernanke may have mastered the art of communicating a message that's neither too hawkish nor too dovish, analysts say.

Bernanke, who spoke before the House Financial Services Committee on Wednesday, reiterated that the U.S. central bank would likely begin tapering its massive monetary stimulus later this year, but reassured that policy would remain accommodative and could change depending on economic data.

(Read More: Markets expect more of the same from Bernanke)

The message seemed to have resonated with markets which appeared untroubled by the "taper talk." U.S. stocks closing marginally higher on Wednesday and Asian equities edged up on Thursday.

"They say practice makes perfect, and there is no doubt that Bernanke has now managed to strike an also most perfect accord between the hawks and the doves after a slight 'sneeze' at the May testimony," wrote Evan Lucas, market strategist at IG Markets.

(Read More: 'Taper' talk bumps bond yields, drives down stocks)

"His language has managed to completely separate QE monetary stimulus tapering and the cash rate, as well as clarifying that bond purchases are 'by no means in a pre-set course'," he added.

In recent months, Bernanke's comments on the prospect of the Fed scaling back its $85 billion a month bond buying program have triggered wild swings in markets.

Global stock markets first sold off in May, when Bernanke said the Fed could reduce the pace of monthly bond purchases at the "next few meetings." But the Fed chief's hawkish tone has changed considerably since; last week, he struck a dovish note by saying accommodative monetary policy would be needed for the foreseeable future, sending stocks rallying.

When Bernanke speaks the markets move
CNBC's Steve Liesman; Beth Ann Bovino, Standard and Poor's; and Greg Ip, The Economist, break down Ben Bernanke's comments today in relation to the markets.

His latest comments during the first day of his latest semi-annual testimony to Congress, however, concluded without any eventful reaction from financial markets.

According to Michel Martinez, senior economist at Societe Generale, it helped that Bernanke stayed consistent with his message and did not surprise markets with anything new.

(Read More: Bernanke: Fed to begin tapering bond purchases later this year)

"Bernanke's testimony didn't provide any new substantive insight on the policy outlook in our view," said Michel Martinez.

"His message that tapering is not tightening appears to finally be getting through," he added.

When does tapering start?

Still, Bernanke's comments are raising expectations that the Fed will begin scaling back its extraordinary monetary stimulus in September.

(Read More: Fed Beige Book: Economy growing at 'modest to moderate pace')

"The bottom line remains that the economy is looking better and jobs creation is back close to pre-GFC levels so September looks likely to be the first meeting where tapering might begin. That said, if the data is softer, then Bernanke has signaled they might delay," said Robert Henderson, chief economist at National Australia Bank.

Barclays shares a similar view on the timing, noting that the pace of purchases will likely be reduced to $70 billion per month from $85 billion in September, with purchases to be concluded by March 2014, the bank wrote in a note on Thursday.

—By CNBC's Ansuya Harjani

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