Bernanke's "Uncertain" Outlook Spooks Markets

(AP)  Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the outlook for the economy remains "unusually uncertain" but that the Fed plans no specific steps "in the near term" to try to fuel the struggling recovery.

Instead, Bernanke said the Fed would monitor the strength of the recovery and consider action if matters worsen.

His comments to the Senate Banking Committee sent stocks tumbling downward. The Dow Jones industrial average had been up 20 points before he spoke. It fell as much as 160 points during his testimony, but recovered some losses to close down 109 points. Investors shifted money into the safety of Treasury bonds; the yield on 10-year Treasury notes fell to 2.86 percent.

"If the recovery seems to be faltering, we have to at least review our options," Bernanke told lawmakers. But he said no further action is planned for now because the economy is still growing.

Record low interest rates are still needed to bolster the economy, Bernanke said. He repeated a pledge to keep them there for an "extended period."

The recovery, which had been flashing signs of strengthening earlier this year, is losing momentum. And fears are growing that it could stall.

Consumers have cut spending. Businesses, uncertain about the strength of their own sales or the economic recovery, are sitting on cash, reluctant to beef up hiring and expand operations. A stalled housing market, near double-digit unemployment and an edgy Wall Street shaken by Europe's debt crisis are other factors playing into the economic slowdown.

"In short, it look likes our economy is in need of additional help," said the committee's chairman, Sen. Chris Dodd, D-Conn.

Sen. Richard Shelby of Alabama, the highest-ranking Republican on the panel, said the economic outlook has become a "bit more cloudy."

Bernanke downplayed the odds that the economy will slide back into a "double-dip" recession. But he acknowledged the recovery is fragile.

Given that, the Fed is "prepared to take further policy actions as needed" to keep the recovery on track, he said. Bernanke said Fed policymakers haven't settled on "leading options" but they are being explored. Those options include lowering the rate the Fed pays banks to keep money parked at the Fed, strengthening the pledge to hold rates at record lows and reviving some crisis-era programs, Bernanke said.

Bernanke is trying to send a positive message that the recovery will last in the face of growing threats. At the same time, he wants to assure Americans that the Fed will take new stimulative actions if necessary.

With little appetite in Congress to provide a major new stimulus package, more pressure falls on Bernanke to keep the recovery going.

Bernanke and his Fed colleagues have cut their forecasts for growth this year.

If the recovery were to flash serious signs of backsliding, the Fed could revive programs to buy mortgage securities or government debt. It could cut to zero the interest rate paid to banks on money left at the Fed or lower the rate banks pay for emergency Fed loans. The Fed also could create a new program to spark more lending to businesses and consumers in a bid to lure them to ratchet up spending and grow the economy.

Bernanke said the debt crisis in Europe, which has rattled Wall Street, played a role in the Fed's "somewhat weaker outlook." Although financial markets have improved considerably since the depth of the financial crisis in the fall of 2008, conditions have become "less supportive of economic growth in recent months," he explained.

As a result, Bernanke said progress in reducing the nation's unemployment rate, now at 9.5 percent, is now expected to be "somewhat slower" than thought. Unemployment is expect to stay high, in the 9 percent range, through the end of this year, under the Fed's forecast.

High unemployment is a drag on household spending, Bernanke said, although he believed both consumers and businesses would spend enough to keep the recovery intact.

Bernanke also said it would take a "significant amount of time" to restore the nearly 8.5 million jobs wiped out over 2008 and 2009.

And, Bernanke said the housing market remains "weak" and noted that the overhang of vacant or foreclosed houses are weighing on home prices and home construction.

Given the weak recovery, inflation is not a problem, Bernanke said. However, Bernanke didn't talk about deflation, a prolonged and destabilizing drop in prices for goods, the values of stocks and homes and in wages. Although most economists think the prospects of deflation are remote, some Fed officials have expressed concern about it.

To strengthen the economy, many economists predict the Fed will hold a key bank lending rate at a record low near zero well into 2011, or possibly into 2012. Doing so, would help nip any deflationary forces.

And keeping that bank rate at super low levels also would mean rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans would stay at their lowest point in decades.

Ultra-low lending rates, however, haven't done much lately to rev up the economy. Consumers and businesses are cautious and aren't showing an appetite to spend as lavishly as they usually do in the early stages of economic recoveries.

Bernanke, meanwhile, welcomed Congress' new revamp of financial regulations signed into law by President Barack Obama on Wednesday. The new law, he said, "will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years."

[workerdroid]

Was to go, Ben. Drive it to the ground and kick it in the sack. What's your vested interest in manipulating the market?

[larry0304]

HUGE increase in jobless claims! This economy is on the verge of collapse and what is our president doing? Devoting all his time and effort into fighting with Arizona. If EVER a president deserved to be impeached, it's this clown.........

[curse914]

FDR got the same treatment. The problem this time around is that Obama does not have "limitless" resources on which to build an economy.

You will be living the end of Infinite Growth economies.

[bobnjersey]

["If the recovery seems to be faltering, we have to at least review our options," Bernanke told lawmakers. But he said no further action is planned for now because the economy is still growing. ]

decoded ... this really means there are no other options.

they have a zero percent interest rate ... they've pumped huge sums of borrowed money into failing industries ... they've pumped huge sums of borrowed money into the economy overall ... and they allocate huge sums of borrowed money every time congress passes anything.

the us economic train ran out of steam decades ago ... and they've been fueling it w/ borrowed money ... and let everyone else join in w/ 'pennies from heaven' 'you are really not qualified' credit.

they have no means to control anything anymore ... it's a system that's too complex ... and dependent on too many things outside their domain.

lighting candles and poking rag dolls might be the only thing left to try.

the end of 2008 was a tremor ... one that will preceed the quake.

[curse914]

Yes, but what you are looking at is a symptom of Infinite Growth reaching its limits within the confines of a community, city, state, country and planet. 1.4 billion of 6 billion this planet consume 75 percent of all extracted resources. Logic dictates that the rest will never be able to consume at the level those 1.4 are.

[bamio]

What Bernanke meant is, "Obamie is screwing up"

[bobnjersey]

[What Bernanke meant is, "Obamie is screwing up"]

i'm just guessing that everything you hear is interpreted this way.

do you see any problems in the world that are due to anything more complex than what obama is ... or is not doing?

why do you suppose you see things this way? do you ever ask yourself that question?

[curse914]

Indeed, when he wife says love him it means "Obamie is screwing up."

Poor nutter.

[curse914]

by sing-with-rapture July 21, 2010 9:38 PM EDT

Hello? He is not saying Bernanke is socialist {curse}.He is refering to democrats who bailed out Bernanke in 2008.But he failed to mention that the Republicans were on it as well.

[][][][][][][][][][]

That would be "National Socialism" ala Mussolini's Corporate State, not "Socialism." You are still wrong.

[curse914]

I have no reason to be embarrassed.

We generally agree, but I am not going to back down in this case, because I am right.

[ganttbarb2]

America can no longer afford a Foreign Policy of war(s).
War only benefits defense contractors that are in bed
with Pentagon officials. Now defense contractors talk
about selling their kill toys to foreign countries because
of the budget cuts. Go figure. Are they going to sell
to Pakistan, Afganistan, Horn of Africa, Iraq...
YOU BETCHA. Because they have to create another reason
for another war.
I think we are in a lot of trouble.
Our country is not going to survive all
these self serving drainage systems of
fraud-waste-abuse-ear marks-pork belly-special interests
at the expense of the Mass Backbone called the Middle Class.
First and foremost I think we need to focus on National self sustaining strategies. We need to generate a kind of fervor of patriotism that 911 did for us...but longer than 24 hours. We need to focus on national survival. Maybe thru a new mindset of what is hip and cool will be a campaign of what will sustain America. I think we should draw in all our resources and have a sweeping game change.
1. We can not afford to be foreign aiders or Imperialists
2. We can not afford to be the world's police
3. We need to strengthen STATE rights for localized grass roots government involvement from all ma & pa's.
4. We need to change campaign finance and elections so ANYONE
can run for office that wants to
5. If a student has a straight 3.0 average or higher, they should be able to go to University for free if their major is in high demand like Electrical-Chemical-Materical Science-Nuclear Engineering(s)are for New Energy Innovations.
6. We need to make it abhorrent and shameful loss of face if a politician is self serving their personal agendas
7. We need to stop lobbyist activites and let the voters decide
8. All high school students have to serve 2 years in some public service such as Military or Peace Corp or CCC etc.
9. We are going to have to pull in our suburban sprawl and have localized communities of scale with localized food farms-greenhouses and trade goods.
10. Mass transit is going to have to connect those outlying localized communities thru (pantographed off dense grid) high speed rails into the larger cities.
11. AN ECONOMY BASED ON NEW SUSTAINABLE ENERGY SOURCES
instead of Oligarchy Big Oil.
12. We need to get the incumbents out of Congress and Senate. Too much of government make decisions outside citizen majority opinion.

[cleantheDCcesspool]

by rightbehind July 21, 2010 5:33 PM EDT
Out of all the years I can recall,"I voted for Reagan" this FED chairman is the only one I respect. I think this guy is a straight shooter. There has been a lot of damage done to this Great Nation. It will take time to repair it. When you see the lobbyist thrown out of Washington DC we are well on the way to repair.
Reply to this comment .by sing-with-rapture July 21, 2010 8:11 PM EDT
You are praising the man who single handed caused this economic damaged to this nation...Hello?unbelievable ignorance at its best.>>>>>>>>>>>

Really rapture? You mean for all these months the flaming libs who said it was all Bush's fault have been lying through their teeth? (I thought I was the only one who was aware of the lies from libs).

[curse914]

Rowdy, how does capitalism fit into your American Theocracy?

[cleantheDCcesspool]

If Bernanke had not told the truth, and instead had imitated Frank and Dodd and said everything looks just great -- right before the next crash -- you libs would go berserk on him.
Instead he called obamao and his ideological failure for what it is.

[melchg07]

Well on the back burner that nobody seems to talk about............

While there may be up to 20% that are under employeed or unemployeed there are a majority that over the past 2 years that have been saving and putting themselves in better financial posisitons.

Sooner or later those people will start spending as long as the economy stays growing (even at a sluggish rate in the near term).

I think Europes debt roles are overplayed as they only account for about 1/3 of our imports. The extended low oil prices will act as a hedge to America to that.

[thy-only_king]

Bernanke's "Uncertain" Outlook Spooks Markets

Obama is the one that spooks markets.